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Take Home Quiz, Modules 32 – 34I have neither given, nor received help on this quiz.SignatureDate1. An industry characterized by having a few firms, each with some market power, is an example of (a)nA.monopoly because the firms have some market power.B.perfectly competitive industry because there is more than one firm in the industry.C.monopolistically competitive industry because the firms compete with one another while at the same time they have some market power.D.oligopoly because the firms have market power and can therefore affect the market price, but there are only a few firms, so each firm recognizes the interdependence among them.2. The formation of an oligopoly can be due to theA.control of an essential input or resource used in the production of the good.B.existence of increasing returns to scale in the industry.C.effective entry barrier posed by copyrights or patents.D.Answers (A), (B), and (C) are all correct.3. Suppose there is a duopoly and that the two firms in this duopoly collude. The firms have agreed to collude most likely as a means toA.stabilize prices.B.stabilize quantities.C.maximize each firm's profit.D.maximize their joint profits.Use the following information to answer the next three questions. The following payoff matrix indicates the level of profits earned by Printers Press and Typesetters, the only two firms in the printing industry in an economy. The level of profit for each firm depends on whether they co-operate or compete with one another. Typesetters4. What is Printers Press's dominant strategy?pete.B.Cooperate.C.Printers Press does not have a dominant strategy5. What is Typesetters' dominant strategy?pete.B.Cooperate.C.Typesetters does not have a dominant strategy.6. When Printers Press and Typesetters pursue their dominant strategies, the sum of their joint profitA.is maximized.B.is not maximized.Answer the next three questions based on the following information. Two firms are the only producers in a market. Each firm is trying to decide whether or not to advertise. If firm B adver tises, firm A earns $2,000 in profit if it does not advertise and $1,800 if it does. (The advertising increases its costs more than its revenues.) If firm B does not advertise, firm A earns $2,200 in profit if it does not advertise and $2,000 if it does. If firm A advertises, firm B earns $3,000 in profit if it does not advertise and $2,700 if it does. If firm A does not advertise, firm B earns $2,600 if it does not advertise and $2,400 if it does.7. What is firm B's dominant strategy?A.Advertise.B.Do not advertise.C.Firm B does not have a dominant strategy. 8. What is the Nash equilibrium for this game?8. What is firm B's dominant strategy?A.Advertise.B.Do not advertise.C.Firm B does not have a dominant strategy. 8. What is the Nash equilibrium for this game9. For these two firms, choosing the dominant strategy results in the best possible outcome with respect to total profit.A.TrueB.False10. Which of the following statements is true?A.In the prisoners' dilemma, both players have an incentive to cheat no matter what the other player does.B.In the prisoners' dilemma, when both players cheat, both are worse off than if neither of them had cheated.C.The prisoners' dilemma is a helpful tool for understanding one-shot games.D.Answers (A), (B), and (C) are all true.11. Which of the following statements is true for a monopolistically competitive firm?I.In the short run, the firm earns a positive economic profit whenever price is greater than average total cost.II.In the short run, the firm produces at the minimum average total cost level of production at which MR = MC.III.Monopolistically competitive firms engage in collusion so that they can set price at a level that is greater than marginal cost.A.Statement I is true.B.Statements I and II are true.C.Statements I and III are true.D.Statements I, II, and III are true.12. Monopolistically competitive firms resemble perfectly competitive firms becauseA.in the long run they earn zero economic profit.B.in the long run they produce at the minimum-cost point of their ATC curves.C.they compete with other firms that offer similar products.D.Answers (A), (B), and (C) are all true.13. Monopolistically competitive firms resemble monopolies becauseA.their MR curves lie beneath their demand curves.B.they charge a price that is greater than their marginal cost of production.C.entry and exit of firms in the long run ensure that profit equals zero in the long run.D.Answers (A), (B), and (C) are all true.E.Answers (A) and (B) are true.14. When monopolistically competitive firms differentiate their products, the result isA.unprofitable because differentiation costs money.B.unprofitable in the short run because monopolistically competitive firms make zero economic profit in the short run.C.profitable in the short run, as long as consumers differ in their tastes.D.wasted effort because consumers would be just as happy with identical products as they are with differentiated products.E.Answers (A) and (C) are true15. Which of the following statements is true about monopolistically competitive industries that produce differentiated products?I.Firms in monopolistically competitive industries that sell differentiated products are characterized as having competition among sellers.II.Monopolistically competitive industries that sell differentiated products are indus-tries that find there is value in diversity.III.Monopolistically competitive industries that sell differentiated products are able to sustain short-run positive economic profit into the long run.A.Statement I is true.B.Statement II is true.C.Statement III is true.D.Statements I and II are true.E.Statements I and III are true.16. When Henry Ford produced his cars, he maximized his economies of scale, while General Motors decided to produce with excess capacity. This resulted inA.Ford being able to produce cheaper cars than General Motors initially because it did not diversify the product it provided.B.General Motors facing a trade-off between offering cars at a lower price with less differ-entiation or selling cars at a higher price with greater differentiation.C.consumers ultimately finding they preferred product differentiation as General Motors sold more cars than Ford.D.Answers (A), (B), and (C) are all true.Use the following diagram of a monopolistically competitive firm to answer the next four questions.17. To identify the profit-maximizing output for this firm in the short run, this graph needsA.the market price identified.B.the MR curve identified.C.the AVC curve identified.D.All of the above answers are true.E.Answers (B) and (C) are true.18. Assuming this firm produces in the short run, it will earnA.negative economic profit because its price is less than its average total cost.B.positive economic profit because its price is greater than its marginal cost.C.zero economic profit because entry of new firms will drive the profits of all firms down to the level at which each firm earns zero economic profit.D.zero economic profit because the exit of firms will cause profits of all existing firms to increase until all the firms left in the industry earn zero economic profit.19. Assuming this firm produces in the short run, it willA.sell more units of the good if MR = MC at its selected level of production.B.sell fewer units of the good if it currently is producing where marginal cost is less than price.C.sell the quantity at which MC equals MR and earn a negative profit.D.be reluctant to advertise, because this will only increase its costs.20. Relative to a perfectly competitive firm, a monopolistically competitive firm producesA.its product at a higher price.B.where its average total cost is increasing as output increases.C.at a point where the firm has excess capacity.D.Answers (A), (B), and (C) are all true.21. Monopolistic competitors often hire a celebrity spokesperson to advertise their product. One explanation for why such advertising works is that:a.celebrities are better informed about the relative merits of different products than the rest of us.b.consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true.c.celebrity endorsements decrease the cost of producing the product and thus lower prices are paid by consumers.d.celebrities encourage other firms to enter the industry.e.the fact that a firm is willing to pay the large fees associated with celebrity advertising signals consumers that the firm is sound, and that it is therefore likely to have a reliable product.22. Budweiser is a brand name that many people recognize. During the Super Bowl each year, this beer company has many of the most successful ads. Which of the following is true about advertising for Budweiser?a.It is designed to increase the demand for Budweiser.b.It decreases the costs of supplying Budweiser.c.It guarantees customers that Budweiser tastes better than other beers.d.It is designed to increase excess capacity.e.It is designed to increase the price elasticity of demand for their beer.23. Defenders of advertising argue that it:a.seeks to persuade, rather than inform, buyers.b.provides education and information about products.c.facilitates the concentration of monopoly power.d.encourages artificial product differentiation.e.decreases production costs for the advertising firms and lowers prices for consumers.24. Which of the following is correct about celebrity spokespersons advertising products?a.Celebrities are better informed about the relative merits of different products than the rest of us.b.Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity.c.Consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true.d.Celebrities are more rational than the typical consumer and would not purchase an inferior product.e.Consumers believe that celebrity spokespersons would not deceive them and have the consumers’ best interests in mind.25. Firms use _____ to provide information about their product or to convince consumers to buy it. And when a company does a good job of this, its product develops a ____ name.a.advertising; styleb.product differentiation; genericc.non-price competition; tacitly collusived.public relations; brande.advertising; brand26. Which of the following is not a factor of production at a college?a.the facultyb.classroom buildingsc.electricityd.the computer labse.the gymnasium27. Factor demand is said to be derived demand because it:a.requires the use of other factors.b.depends on product demand.c.has a downward-sloping demand curve.d.has a constant marginal factor cost.e.depends on the cost of hiring the factor.28. In terms of contribution to total income, the single most important factor of production is:a.physical capital.b.labor.c.natural resources.d.entrepreneurship.e.financial capital.29. Suppose Billy Bud's Bucking Broncos employs 20 workers at a daily wage rate of $60 each. The average product of labor is 30 bucking broncos per day; the marginal product of the last worker is 12 bucking broncos per day; and total fixed cost is $3,600 for equipment. What is the marginal cost of the last bucking bronco produced?a.$0.20b.$60c.$240d.$720e.$530. Semi-Scientific Superconductors, a firm that produces goods and hires labor in competitive markets, should continue hiring workers until:a.MPL * P = demand.b.the quantity of labor supplied = the quantity of labor demanded.c.MPL * P = wage.d.MPL * W = P.e.MPL = wage.31. Barry's Brewpub is considering hiring more brewmasters (they already employ several). The current market wage for a brewmaster is $120. The average brewmaster produces 40 pints per day, but Barry expects the next brewmaster hired to produce only 20 additional pints per day. Barry's Brewpub will hire another brewmaster only if:a.a pint of brew sells for $3.b.the new brewmaster can produce 40 pints.c.a pint of brew sells for $2.d.the market wage for a brewmaster rises.e.a pint of brew sells for $6 or more.32. Mary is considering hiring another worker in an assembly line for stereo speakers. Mary knows the average product of labor is 15 speakers per day. She also believes that the next worker hired will produce an extra 12 speakers per day. A speaker sells for $10 each. Mary should hire another worker:a.only if the new worker's marginal product is 12 or more.b.only if the new worker's daily wage is $150 or less.c.only if the new worker's daily wage is $120 or less.d.since the marginal product is below the average product.e.only if the value of the marginal product is less than the market wage.Numberof WorkersOutputof Corn(units of corn)00130258379494510461087110Table 69-2: Workers and Corn Output33. (Table 69-2: Workers and Corn Output) Laura is a price-taking farmer who produces corn. Assume the wage rate for workers is $250 and the price per unit of corn is $20. The table shows Laura's production function. Laura should hire ________ workers to maximize profits.a.oneb.twoc.fourd.sevene.three34. (Table 69-2: Workers and Corn Output) Laura is a price-taking farmer who produces corn. The table shows her production function. Suppose Laura acquires more land and as a result the output that can be produced by any given number of workers doubles. If the wage is $130 and the price per unit of corn is $10, to maximize profits Laura should hire ________ workers.a.fourb.fivec.sixd.sevene.threeQuantity of Labor(workers)Quantity of Wheat(baskets)Marginal Product of Labor(bushels per worker)001911917236153511346411575968477915896Table 69-3: Employment and Output35. (Table 69-3: Employment and Output) In the table, if the price of a bushel of wheat is $10, then the value of the marginal product of the fifth worker is:a.$11.b.$110.c.$90.d.$750.e.$640.Figure 69-1: The Value of the Marginal Product Curve36. (Figure 69-1: The Value of the Marginal Product Curve) In the figure, if the market wage rate increases:a.the VMPL curve would shift to the right.b.the profit-maximizing quantity of labor will increase.c.the VMPL curve would shift to the left.d.the profit-maximizing quantity of labor will decrease.e.there will be no change to the profit-maximizing quantity of labor.37. The amount by which an additional unit of a factor increases the firm's total revenue during a period is the:a.wage.b.average product.c.marginal factor cost.d.marginal physical product.e.value of the marginal product.38. If the extra output that is produced by hiring one more unit of labor adds more to ________ than to ________, the firm will increase its profit by increasing the use of labor.a.total cost; total revenueb.total revenue; total costc.marginal cost; marginal revenued.marginal revenue; marginal coste.marginal product; marginal costQuantityof LaborTotal Product0012025039041205140615071508140Table 69-4: Value of the Marginal Productof Labor and Demand39. (Table 69-4: Value of the Marginal Product of Labor and Demand) If the product price is $2 per unit and the wage rate is $1,080 per unit of labor, the profit-maximizing quantity of labor is ________ units.a.zerob.twoc.fourd.sixe.oneFigure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market40. (Figure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market) If the price (wage) of bricklayers is $100 per day, that price was determined by:a.the firm hiring the bricklayers.b.demand and supply in the market for bricklayers.c.the government.d.where VMPLbricklayers = MPbricklayers ? P of output.e.the union representing the bricklayers.41. (Figure 69-2: Demand for Bricklayers in a Perfectly Competitive Labor Market) If there is a decrease in another factor of production that bricklayers use, then the value of the eighth worker will be ________ the current value of ________.a.less than; $80b.greater than; $100c.less than; $60d.greater than; $80e.equal to; $8042. Suppose all perfectly competitive construction firms are hiring the profit-maximizing quantity of labor and capital, and are paying their workers $5 per hour. Then suppose the government imposes a minimum wage of $6 per hour. Then:a.the value of the marginal product would exceed the wage, and firms would hire more workers.b.the value of the marginal product would be less than the wage, and firms would lay off some workers.c.the firms would increase their prices to keep the value of the marginal product equal to the wage.d.firms would have to exit the industry since the value of the marginal product is less than the wage.e.the value of the marginal product would exceed the wage, and firms would lay off some workers.43. A decrease in the demand for pastry chefs may come about because of an:a.increased concern for fitness.b.increase in the market wage rate for pastry chefs.c.increase in the productivity of pastry chefs.d.increase in the supply of other factors that pastry chefs use.e.decrease in the price of other factors that are employed with pastry chefs.44. Value of the marginal product is calculated as:a.MP ? MR.b.MP ? P.c.MP ? P.d.MR ? MP.e.W ? P.45. A firm's demand curve for an input in a perfectly competitive market is the downward-sloping portion of its:a.marginal revenue curve.b.average total cost curve.c.marginal cost curve.d.total revenue curve.e.VMPL curve.46. If the wage rate rises, firms will find that:a.their labor demand curve shifts leftward.b.their labor demand curve shifts rightward.c.they move upward and to the left along the labor demand curve.d.they move downward and to the right along the labor demand curve.e.the profit-maximizing quantity of labor also rises.47. When a person becomes more educated and is able to produce a better product, the person's education is referred to as:a.human capital.b.physical capital.c.land.d.labor.e.natural resources.Scenario 69-1: Perfectly Competitive MarketAssume the product market is perfectly competitive and that the labor market is also perfectly competitive. Also assume that the price of the firm's product is $5. The firm's total product with respect to labor is given in the table below.Quantityof Labor(numberof workers)Quantityof Output001721331842148. (Scenario 69-1: Perfectly Competitive Market) The marginal product of the fourth worker is ________.a.7b.21c.3d.15e.5.2549. (Scenario 69-1: Perfectly Competitive Market) Holding everything else constant, if the demand for this firm's product decreases, then this firm will:a.notice a shift in its value of marginal product curve to the right and it will hire more workers.b.notice a shift in its value of marginal product curve to the left and it will hire more workers.c.notice a shift in its value of marginal product curve to the left and it will hire fewer workers.d.not experience any change in its hiring since it is a perfectly competitive firm.e.notice a shift in its value of marginal product curve to the right and it will hire fewer workers.50. The firm's value of marginal product curve slopes downward:a.only if the firm is a perfect competitor in the product market.b.because of diminishing returns.c.only if the firm is a perfect competitor in the labor market.d.only if the firm is a perfect competitor in both the labor and product market.e.only if the supply of labor is upward sloping. Short AnswerModule 32(68)1. For each of the following types of advertising, explain whether it is likely to be useful or wasteful from the standpoint of consumers.a. advertisements explaining the benefits of aspirinb. advertisements for Bayer aspirinc. advertisements that state how long a plumber or anelectrician has been in business2. Some industry analysts have stated that a successful brand name is like a barrier to entry. Explain why this might be true.Module 33(69)1. Suppose that the government places price controls on the market for college professors, imposing a wage that is lower than the market wage. Describe the effect of this policy on theproduction of college degrees. What sectors of the economy do you think would be adversely affected by this policy? What sectors of the economy might benefit?2. a. Suppose service industries, such as retailing and banking, experience an increase in demand. These industries use relatively more labor than nonservice industries. Does the demand curve for labor shift to the right, shift to the left, or remain unchanged?b. Suppose diminishing fish populations off the coast of Maine lead to policies restricting the use of the most productive types of nets in that area. The result is a decrease in the number of fish caught per day by commercial fishers in Maine. The price of fish is unaffected. Does the demandcurve for fishers in Maine shift to the right, shift to the left, or remain unchanged?1. Explain how each of the following events would affect the equilibrium rental rate and the equilibrium quantity in the land market.a. Developers improve the process of filling in coastal waters with rocks and soil to form large new areas of land.b. New fertilizers improve the productivity of each acre of farmland.2. Explain the following statement: “When firms in different industries all compete for the same land, the value of the marginal product of the last unit of land rented will be equal across all firms, regardless of whether they are in different industries.”Module 34(70)1. Explain how each of the following events would affect the equilibrium rental rate and the equilibrium quantity in the land market.a. Developers improve the process of filling in coastal waters with rocks and soil to form large new areas of land.b. New fertilizers improve the productivity of each acre of farmland.2. Explain the following statement: “When firms in different industries all compete for the same land, the value of the marginal product of the last unit of land rented will be equal across all firms, regardless of whether they are in different industries.” ................
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