Microeconomics II
Final
06/17, 2008
- Multiple Choices (45 points)
1) Perfect competition and monopolistic competition are similar in that both market structures include
A) price-taking behavior by firms.
B) a homogeneous product.
C) no barriers to entry.
D) very few firms.
2)
The above figure shows a payoff matrix for two firms, A and B, that must choose between selling basic computers or advanced computers. Which of the following is a Nash equilibrium?
A) Both firms make advanced computers.
B) Both firms make basic computers.
C) Firm A makes basic computers and firm B makes advanced computers.
D) There are no Nash equilibria.
3)Compared to a cartel firms in a Cournot Oligopoly
A) make more joint profit.
B) make less joint profit.
C) sell less output.
D) act independently.
4)If only two identical firms operate in a market, consumers prefer
A) a Stackelberg equilibrium.
B) a Cournot equilibrium.
C) a collusive equilibrium.
D) any equilibrium since they all result in the same consumer surplus.
5)Suppose the marginal product of labor equals 1/L. If the wage is $1 per unit of labor, what is the short-run effect on the firm's labor demand if the price of output were to double?
A) The firm will demand half as much labor.
B) The firm will demand twice as much labor.
C) The firm will demand the same quantity of labor.
D) There is not enough information to determine.
6)Monopolization of both the labor market and the output market results in
A) higher wages than when both are competitive.
B) a higher output price than when both are competitive.
C) a lower level of output than when both are competitive.
D) All of the above.
7)A monopsonist faces an upward-sloping labor supply curve. This means that his
marginal expenditures on labor are
A) greater than the wage.
B) equal to the wage plus the increase in the wage resulting from hiring one more unit of labor hired.
C) greater than the wage because hiring more workers requires to pay all workers
more.
D) All of the above.
8)The efficient quantity of a pure public good occurs when the marginal cost of
producing that good equals the
A) marginal benefit to the median voter.
B) marginal benefit to each individual.
C) sum of all individual marginal benefits.
D) sum of all individual marginal benefits divided by the number of voters.
9)In the presence of an negative externality, a specific tax can achieve the social
optimum because
A) output is reduced to zero as a result.
B) it internalizes the external cost.
C) it directly charges the producer for polluting.
D) the price of the good rises by the full amount of the tax.
10)
The above figure shows the marginal benefit from pollution for two firms. If each firm receives a marketable permit to produce 25 units of pollution, which one of the following is most likely to happen?
A) Firm B will sell some pollution rights to firm A.
B) Firm A will sell some pollution rights to firm B.
C) Firm A will produce all 50 units of pollution.
D) Both firms will produce 25 units of pollution.
11) If inflation is 10% and the nominal interest rate equals 16.6% the real interest rate is equal to
A) 6.6%
B) 6%
C) -6.6%
D) zero.
12) At age 40, Joe is considering quitting his job and going back for a college degree. He needs two more years full-time. Tuition is $10,000 per year. He earns $30,000 per year. A college degree would raise his annual income by $10,000 per year. He will retire at age 70. His benefit of a degree would be
A) 10,000/r.
B). 10,000 × .
C) 10,000 ×.
D) 10,000 × .
13) Suppose an exhaustible resource can be sold only this period or next period. The resource owner is considering selling 100 tons of the resource this period. The future value of the resource when 100 tons are sold this period is less than the present value of the 100 tons sold this period multiplied by one plus the interest rate. What should the resource owner do?
A) She should sell more than 100 tons this period.
B) She should sell only 100 tons this period.
C) She should sell less than 100 tons this period.
D) She should not sell any of the resource in either period.
14) Government borrowing may crowd out borrowing by private interests because
A) funds are not available at any interest rate.
B) the equilibrium interest rate increases.
C) the supply curve shifts to the left.
D) None of the above.
15) The Net Present Value approach to investment results in an investment being undertaken only if
A) it has positive cash flow.
B) its net present value is zero.
C) its net present value is positive.
D) its internal rate of return equals the rate of interest.
1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 1011 / 12 / 13 / 14 / 15
- True or False (30 points)
For the following, please answer "True" or "False" and explain why.
1)Because a monopoly will produce less of a good than a competitive market will, welfare is always greater under monopoly than under competition in the presence of a negative externality.
2)If the competitive firm maximizes profit by selecting labor rather than output, it will earn greater economic profit.
3)A monopsonist's marginal expenditure curve lie above the labor supply curve.
4)If neither firm has a dominant strategy, a Nash equilibrium cannot exist.
5)The ability to set a price greater than marginal cost guarantees an economic profit for the monopolistic competitor .
- Problems (30 points)
1) (7 points)
Suppose a monopoly producer is also a monopsonist in the labor market. Demand for the output is p = 150 - 2Q. The production function is Q = L, and the labor supply curve is w = 10 + 2L. How much labor does the firm hire? What wage is paid?
2) (8 points)
The above figure shows the reaction functions for two pizza shops in a small isolated town. Compare the Cournot, Stackelberg, cartel, and competitive equilibria in terms of total output and welfare.
3)(8 points)
Suppose that your college offers you two payment plans. You may either pay tuition of $10,000 per year at the beginning of each of the next four years, or pay just $38,000 before the start of freshman year. If the interest rate is 10%, what would you do? If the interest rate were 2%, what would you do? Intuitively explain the difference in your answer.
4)(7 points)
Suppose that in the market for paper, demand is p = 100 - Q. The private marginal cost is MCP = 10 + Q. Pollution generated during the production process creates external marginal harm equal to MCe = Q. Is social welfare greater under monopoly or under competition?