Eric Dodge Page 3 11/19/2003
Intro Micro Exam 3, Fall 2003.doc
NAME:______
You may not attach additional paper to this exam. You may use the back page for additional space. If something is unclear, please do not hesitate to ask for clarification.
1. A professional sports team (i.e. New York Yankees, Dallas Cowboys, Portland Trailblazers) is sometimes described as a monopoly. Do you agree? Justify your response by using the defining characteristics of pure monopoly. How does the “relevant market” affect your answer? (14 points)
2. A monopolist has the following total cost function and demand curve:
Price ($) / Output (units) / Total Cost ($)10 / 0 / 5
9 / 1 / 6.50
8 / 2 / 7.50
7 / 3 / 10
6 / 4 / 13
5 / 5 / 17
4 / 6 / 22
3 / 7 / 28
2 / 8 / 35
1 / 9 / 43
0 / 10 / 52
b. Now suppose that a fixed cost (i.e. insurance on the building) decreases by $1. How will this affect the profit maximizing quantity, price and profit realized by the monopolist? Be specific. (6 points)
3. The video “Unions in Crisis” documents the important economic, political and sociological reasons why union membership has slipped from over 1/3 of the workforce to under 1/6 today. Briefly summarize 2 of these reasons, using specific examples from the video. (14 points)
4. Suppose a particular labor market is in a state of equilibrium and that there is no government intervention. Indicate with diagrams how the following events will affect the market for labor and predict changes in equilibrium employment and the market wage. (6 points each)
a. The demand for the product produced by the labor decreases.
b. The industry experiences technological improvement in the capital equipment with which labor is combined.
c. The price of capital, a substitute for the labor, decreases.
5. In the video “The Future of Work”, economist Jeremy Rifkin foresees a calamity of global proportions as 80% of the workforce is marginalized, replaced by robots and computers. Among other things, he predicts even more polarization between rich and poor. Describe Rifkin’s proposals for avoiding these dire predictions. (10 points)
6. Suppose the productivity of labor and capital are as shown in the accompanying table. The output of these resources sells in a purely competitive market for $.50 per unit. Both labor and capital are hired under purely competitive conditions at $2 and $3, respectively.
1 / 20 / 1 / 20
2 / 16 / 2 / 18
3 / 12 / 3 / 16
4 / 10 / 4 / 12
5 / 8 / 5 / 8
6 / 4 / 6 / 6
7 / 2 / 7 / 4
a. What is the leastcost combination of labor and capital to employ in producing 132 units of output? Explain. (4 points)
b. What is the profitmaximizing combination of labor and capital the firm should use? What is the resulting level of output? What is the economic profit? Is this the least costly way of producing the profit-maximizing output? Explain. (6 points)
7. How could the market for Thneeds from “The Lorax”, be an example of a negative externality? In a clearly labeled diagram, show how it affects supply and/or demand curves for Thneeds. How does this create a resource problem? (12 points)