Econ 1102: Principles of Macroeconomics s1

Name: ______Class Time: ______

HW #4

“Principles of Microeconomics”

North Shore Community College - Fall 2006

Professor: Moonsu Han

Total 25 points.

Question 1 Bring definitions for following terms. (Total 4 pts., 1 pt each)

1.  Perfect Competition:

2.  Dominant Strategy:

3.  Nash Equilibrium:

4.  Monopoly:

Question 2

North Shore, Inc., makes cakes and then sells them door-to-door, Here is the relationship btwn the number of workers and North Shore’s output in a given day: (Total 6 pts.)

(a)  Fill in the column of Marginal products of Labor (MPL). (1.5 pts.)

(b)  A worker costs $200 a day, and the firm has fixed costs of $1,000. Use this information to find Total Costs (TC), Average Total Costs (ATC), and Marginal Costs (MC) in above table. (4.5 pts.)

Question 3 Suppose you have a nice friend, Moon. He runs his own lawn mowing company but he doesn’t know anything about economics. Moon’s lawn-mowing service is a profit maximizing, competitive firm. Moon mows lawns for $30 each. His total cost each day is $330, of which $60 is a fixed cost. He mows 10 lawns a day. If Moon asks you whether he should shut down or not in the short run, what can you say about Moon’s short-run decision regarding shut down? (Total 3 pts.)

Question 4 Draw graphs to show either losses or profits for following cases. Each graph should be clearly labeled and should be correct according to economic theories. (Total 6 pts.)

(a)  “Short-run losses” in perfectly competitive markets. (3 pts.)

(b)  “Short-run profits” in monopolistic competition markets. (3 p

Question 5 Suppose that Wal-Mart and Target are competing on whether to stick with barcodes or switch to radio frequency identification (RFID) tags to monitor the flow or products. Because many suppliers sell to both Wal-Mart and Target, it is much less costly for suppliers to use one system or the other, rather than to use both. The following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies: (Total 6 pts.)

Target

Wal-Mart

(a)  Briefly explain whether Wal-Mart has a dominant strategy. (2 pts.)

(b)  Briefly explain whether Target has a dominant strategy. (2 pts.)

(c)  Briefly explain whether there is a Nash Equilibrium in this game. (2 pts.)

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