Microeconomics Review 2nd Section

The government can attempt to correct the externality by setting a

• (A) per-unit tax equal to (P4− P1)

• (B) per-unit tax equal to (P4 P2 − )

• (C) per-unit subsidy equal to (P4 P2)

• (D) per-unit subsidy equal to (P3 P2 − )

• (E) price ceiling at P2

Both Amy and Brad produce and consume apple pie and ice cream. In one hour, Brad makes five apple pies or ten gallons of ice cream while Amy makes fifteen apple pies or fifteen gallons of ice cream. Based on the above information, one can correctly conclude that

• Brad has an absolute advantage in making ice cream and will sell ice cream to Amy

• Brad has a comparative advantage in making ice cream and will sell ice cream to Amy

• Brad does not have a comparative advantage in making either good and will not trade with Amy

• Brad has an absolute advantage in making apple pies but a comparative advantage in making ice cream

• Brad’s opportunity cost of making ice cream is higher than Amy’s

If the government imposes a per-unit tax on personal computers, consumer surplus in the personal computer market will

• decrease, because the price paid by consumers for personal computers will have increased

• decrease, because there will be more personal computers on the market

• increase, because personal computer manufacturers will pass the tax on to consumers

• increase, because consumers will buy more imported personal computers

• not change because the demand is unit elastic

Assume that the supply of corn is relatively price inelastic, while the demand for corn is relatively price elastic. If the government imposes a per-unit excise tax on the production of corn, the incidence of the tax will fall

• entirely on buyers

• more on buyers than on sellers

• entirely on sellers

• more on sellers than on buyers

• equally on both buyers and sellers

Assume the following utility schedule for Aaliyah’s ice cream consumption. If she consumes 6 units, what is the value of her total utility from consuming ice cream?

• 22

• 20

• 18

• 0

• -2

Economies of scale can be illustrated by

• an increasing short-run marginal cost curve as a firm produces more output

• a decreasing short-run average total cost curve as a firm produces more output

• a downward-sloping long-run supply curve for an industry

• a decreasing long-run average total cost curve as a firm produces more output

• an increasing long-run average total cost curve as a firm produces more output

In a monopsonistic labor market, a firm will continue to hire workers until the marginal revenue product of labor

• equals marginal factor (resource) cost, resulting in more workers being hired at a lower wage compared with a perfectly competitive labor market

• equals marginal factor (resource) cost, resulting in fewer workers being hired at a lower wage compared with a perfectly competitive labor market

• equals marginal factor (resource) cost, resulting in fewer workers being hired at a higher wage compared with a perfectly competitive labor market

• is less than marginal factor (resource) cost, resulting in more workers being hired at a lower wage compared with a perfectly competitive labor market

• is less than marginal factor (resource) cost, resulting in fewer workers being hired at a lower wage compared with a perfectly competitive labor market

Assume that a monopolistically competitive firm is currently maximizing profit with an output of 100 units and a price of $50. Which of the following is true?

• Total revenue is maximized when the firm produces 100 units of output.

• Marginal revenue equals $50 when the firm produces 100 units of output.

• Marginal cost is greater than marginal revenue when the firm produces 150 units of output.

• Marginal cost is minimized when the firm produces 100 units of output.

• Average total cost is minimized when the firm produces 100 units of output.

There are four firms in an oligopolistic industry. The four firms agree to collude and act like a monopoly. If one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run?

• The firm that cheats will earn higher profits, and industry profits will be lower.

• The firm that cheats will earn higher profits, and industry profits will be higher.

• The firm that cheats will earn lower profits, and industry profits will be lower.

• The firm that cheats will earn lower profits, and industry profits will be higher.

• The firms that do not cheat will earn higher profits.

Which of the following can give a firm market power?

• Having access to common information

• Producing a standardized or homogeneous product

• Lacking barriers to entry or exit

• Having a large number of competitors in the market

• Having economies of scale in production over the range of market output