Question: 2.1. A monopoly is inefficient solely
2.1. A monopoly is inefficient solely because the monopolist gets a profit at the expense of consumers. (True/False)
2.2. To show the deadweight loss from monopoly, we compare the monopoly outcome to what would happen under .
2.3. Relative to a competitive market equilibrium, the profit maximizing quantity chosen by a monopolist will result in a deadweight loss because the monopolist will produce at a quantity than the competitive equilibrium.
2.4. The average cost for providing off-street parking is $30 per space per day, and as a monopolist you could charge $35 per space per day for 200 spaces. The maximum amount that you are willing to pay for a monopoly is $ .
2.5. The profit-sharing agreement between Michigan and the Native American tribes for casinos is an example of .
2.6. Ending a Casino monopoly. Consider a state that initially has a single casino for gambling. Suppose the state allows a second casino to enter the market. How would you expect the entry of the second casino to affect (a) the variety of games offered in the casinos and (b) the payout (winnings) per dollar spent?
2.7. Payoff for Casino Approval. Recall the Application on Native American casinos in Michigan. Why aren’t similar deals proposed for new clothing stores, music stores, or auto repair shops?
2.8. Consumer Compensation. Consider the chapter opener about campus beverage monopolies. Your job is to fully compensate each student for the cost associated with a soft-drink monopoly. Suppose Coca-Cola increased the price of soft drinks by $0.20 per can and each student consumed 10 soft drinks before the monopoly was granted.
a. Kate continues to buy 10 soft drinks at the higher price. What is the appropriate compensation for her?
b. Elise buys only four soft drinks at the higher price. Her demand curve is linear. What is her appropriate compensation? Draw a graph that shows her change in consumer surplus.
2.9. Pricing with Zero Marginal Cost. Consider a natural spring that produces water with a unique taste. The monopolist who owns the spring has a fixed cost of installing plumbing to tap the water but no marginal cost. The demand curve for the spring water is linear. Draw a graph to show the monopolist’s choice of a price and quantity. At the profit-maximizing quantity, what is the price elasticity of demand? If the spring were owned by a government that applied the marginal principle, what price would it charge?
2.10. Rules of monopoly. In the board game monopoly, a player who gets the third deed for a group of properties (for example, the third of three orange properties) doubles the rent charged to all other players who land on any property in the group. Similarly, a player who has a single railroad charges a rent of $25, while a player who has all four railroads charges a rent of $200 for each railroad.
a. Are these pricing rules consistent with the analysis of monopoly in this chapter?
b. In the game, is there a deadweight loss from monopoly? Why or why not?
2.11. The National Park Service monopoly. The National Park service grants a single firm the right to sell food and other goods in Yosemite National Park.
a. What are the trade-offs associated with this policy? Who gains and who loses?
b. Does your answer to part (a) depend on whether the monopoly is granted as a political favor or auctioned to the highest bidder?
2.12. Deadweight Loss and Demand Elasticity. Using Figure 25.4 as a starting point, consider a similar product that has the same monopoly price and quantity ($18 and 200 doses), but a more elastic demand. The long-run marginal cost is the same ($8).
Figure 25.4:
a. A more elastic demand generates a (flatter/ steeper) market demand curve.
b. Draw a graph like the one shown in Figure 25.4 and show the deadweight loss from the monopoly on the product.
c. The deadweight loss is (larger/smaller) than the loss shown in Figure 25.4 because the change in monopoly is (larger/smaller).
Transcribed Image Text:
A $18 B Long-run average cost and market supply D Market demand 200 400 Doses of drug per hour
> A music company has these costs: Advertising Paper inserts for CD cases Blank CDs CD plastic cases Depreciation of CD image Salaries of sales representatives burner Salaries of factory maintenance employees Salary of factory manager
> Match each of the following terms with the phrase that best describes it. Quality of earnings Pro forma income Current ratio Discontinued operations Horizontal analysis Comprehensive income 1. A me
> Foyle Corporation has issued 100,000 shares of $5 par value common stock. It was authorized 500,000 shares. The paid-in capital in excess of par value on the common stock is $263,000. The corporation has reacquired 7,000 shares at a cost of $46,000 and i
> Fugate Inc. is considering these two alternatives to finance its construction of a new $2 million plant: 1. Issuance of 200,000 shares of common stock at the market price of $10 per share. 2. Issuance of $2 million, 6% bonds at face value. Complete the t
> Kosco CD Company has had 4 years of record earnings. Due to this success, the market price of its 400,000 shares of $2 par value common stock has increased from $6 per share to $50. During this period, paid-in capital remained the same at $2,400,000. Ret
> Fusion Corporation has 3,000 shares of 8%, $100 par value preferred stock outstanding at December 31, 2014. At December 31, 2014, the company declared a $105,000 cash dividend. Determine the dividend paid to preferred stockholders and common stockholders
> Edelman Corporation issued the following statement of cash flows for 2014. (a) Compute free cash flow for Edelman Corporation. (b) Explain why free cash flow often provides better information than “Net cash provided by operating activ
> RL Photography reported net income of $100,000 for 2014. Included in the income statement were depreciation expense of $6,300, patent amortization expense of $4,000, and a gain on disposal of plant assets of $3,600. RL’s comparative bal
> Suppose McDonald’s 2014 financial statements contain the following selected data (in millions). Instructions: (a) Compute the following values and provide a brief interpretation of each. (1) Working capital. (2) Current ratio. (3) D
> Romine Company issued $350,000 of 8%, 20-year bonds on January 1, 2014, at face value. Interest is payable annually on January 1. Instructions: Prepare the journal entries to record the following events. (a) The issuance of the bonds. (b) The accrual of
> Assume that the following are independent situations recently reported in the Wall Street Journal. 1. General Electric (GE) 7% bonds, maturing January 28, 2015, were issued at 111.12. 2. Boeing 7% bonds, maturing September 24, 2029, were issued at 99.08.
> Riot Company issued $500,000, 15-year, 7% bonds at 96. Instructions: (a) Prepare the journal entry to record the sale of these bonds on January 1, 2014. (b) Suppose the remaining Discount on Bonds Payable was $12,000 on December 31, 2019. Show the balan
> Leiker Corporation has these accounts at December 31: Common Stock, $10 par, 5,000 shares issued, $50,000; Paid-in Capital in Excess of Par Value $22,000; Retained Earnings $42,000; and Treasury Stock, 500 shares, $11,000. Prepare the stockholders’ equit
> Goins Corporation issued a $50,000, 10%, 10-year installment note payable on January 1, 2014. Payments of $8,137 are made each January 1, beginning January 1, 2015. Instructions: (a) What amounts should be reported under current liabilities related to t
> Nance Co. receives $280,000 when it issues a $280,000, 6%, mortgage note payable to finance the construction of a building at December 31, 2014. The terms provide for semiannual installment payments of $14,285 on June 30 and December 31. Instructions: P
> Gomez Company issued $380,000, 7%, 10-year bonds on January 1, 2014, for $407,968. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Gomez uses the effective-interest method to amortize bond
> Cole Corporation issued $400,000, 7%, 20-year bonds on January 1, 2014, for $360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Cole uses the effective-interest method to amortize bon
> Canyon Company issued $600,000, 10-year, 6% bonds at 103. Instructions: (a) Prepare the journal entry to record the sale of these bonds on January 1, 2014. (b) Suppose the remaining Premium on Bonds Payable was $10,800 on December 31, 2017. Show the bal
> Prophet Company issued $500,000, 6%, 30-year bonds on January 1, 2014, at 103. Interest is payable annually on January 1. Prophet uses straight-line amortization for bond premium or discount. Instructions: Prepare the journal entries to record the follo
> Suppose 3M Company reported the following financial data for 2014 and 2013 (in millions). Instructions: (a) Calculate the current ratio for Sedgewick Boutique for 2014 and 2013. (b) Suppose that at the end of 2014, Sedgewick Boutique used $1.5 million
> Suppose McDonald’s 2014 financial statements contain the following selected data (in millions). Instructions: (a) Compute the following values and provide a brief interpretation of each. (1) Working capital. (2) Current ratio. (3) D
> Santana, Inc. reports the following liabilities (in thousands) on its January 31, 2014, balance sheet and notes to the financial statements. Instructions: (a) Identify which of the above liabilities are likely current and which are likely long-term. Li
> The situations presented here are independent of each other. Instructions: For each situation, prepare the appropriate journal entry for the redemption of the bonds. (a) Pelfer Corporation redeemed $140,000 face value, 9% bonds on April 30, 2014, at 101
> Mike Haden, president of Haden Corporation, believes that it is a good practice for a company to maintain a constant payout of dividends relative to its earnings. Last year, net income was $600,000, and the corporation paid $120,000 in dividends. This ye
> Explain how IFRS defines a provision and give an example.
> 5.1. A pollution tax on automobiles provides an incentive to buy , maintain , drive , and use alternative . 5.2. Arrows up or down: A gasoline tax will shift the supply curve for gasoline , causing the equ
> 3.1. Consider a market with two firms managed by Harry and Vera. Under a cartel (both firms pick the high price), each firm earns a profit of $80. Under a duopoly (both firms pick the low price), each firm earns a profit of $60. If the two firms pick dif
> 6.1. The short-run supply curve is steeper than the long-run supply curve because of the principle of . 6.2. Arrows up or down: Suppose the demand for shirts increases. In the short run, the price by a relatively large amount. As firms enter
> 2.1. The relationship between the quantity of output produced and the quantity of inputs used to produce it is called the __________. 2.2. Which of the following would be counted as part of the stock of capital? a. copy machines in a photocopying shop b.
> 2.1. A fire extinguisher is an example of a (n) good with a (n) benefit. 2.2. Education generates three types of external benefits: , , and . 2.3. The external benefit of transforming a high school
> 1.1. Suppose 2,000 people would each get a benefit of $60 from a bridge. Building the bridge is socially efficient if its cost is less than $ . If the cost is $80,000, a tax of $ per person would generate unanimous support for the bridge. 1
> 5.1. The reservation price is the price at which the consumer is about additional search, meaning that the of search equals the . 5.2. If a consumer knows that TVs are available at BestBuy at a price as low as $200,
> 2.1. Consider a thin used-car market. Someone just developed a device that can instantly identify the nearest plum in a used-car lot. The device works only once. The maximum amount that a consumer would be willing to pay for the device equals
> 4.1. In the market for insurance, the moral-hazard problem is that encourages . 4.2. While shopping for office equipment, an office manager sees a display of fire extinguishers. After making a single phone call, the manager decides not to buy
> 3.1. Suppose the average annual penalty is $10,000 for reckless drivers and $1,000 for careful drivers. If half of an insurance company’s insured drivers are reckless, the company will earn zero economic profit if the price of insurance is $ .
> 1.1. There is asymmetric information in the used-car market because (buyers/sellers) cannot distinguish between lemons and plums but (buyers/sellers) can. 1.2. The supply curve for high-quality used cars lies (above
> 1.1. Arrows up or down: At a natural monopolist’s current level of output, marginal cost exceeds marginal revenue. The firm should its output and its price. 1.2. The entry of a second firm shifts the demand curve of
> 2.1. The purpose of antitrust policy is to promote , which leads to lower . 2.2. There are three types of antitrust policies: (1) , (2) , and (3) . 2.3. In the Staples case discussed in this chapt
> 4.1. Otto has a monopoly on limousine service, and Carla is thinking about entering the market. The outcome of the entry-deterrence game represented by the game tree on the following page is that Otto picks the quantity and Carla the
> 3.1. Robert Solow added ____________ to the conventional production function to account for technological change. 3.2. ____________ is a method used to determine the contribution to economic growth from increased capital, labor, and technological progre
> 5.1. The advertisers’ dilemma is that both firms would be better if advertises, but each has an incentive to . 5.2. The advertisers’ dilemma shown in Figure 27.10 on page 618 occurs when advertisi
> 2.1. For firms with a low-price guarantee, the promise of matching a lower price is a(n) promise because all firms will charge the same price. 2.2. Suppose that Jack and Jill use a tit-for-tat scheme to encourage cartel pricing. Jill chooses
> 1.1. A market is considered “unconcentrated” if the Herfindahl– Hirschman Index (HHI) is below and is “highly” concentrated if the HHI is at least . 1.2.
> 3.1. The trade-off with entry is that an increase in the number of firms leads to higher but greater. 3.2. When products are differentiated by location, the entry of firms generates benefits for consumers in the form of. 3.3. A perfectly competitive fir
> 1.1. Monopolistic competition describes a market served by firms that sell products. 1.2. Arrows up or down: At a firm’s current level of output, marginal revenue exceeds the marginal cost. The firm should its output and its price. 1.3. The marginal pr
> 2.1. Monopolistic competition refers to a market in which old boys act naturally as they transport tight slacks in the back of Dodge Ram pickup trucks. (True/False) 2.2. Perfectly competitive firms sell a product, while monopolistically competitive firm
> 4.1. Advertising for eyeglasses (increases/ decreases) the price of eyeglasses because advertising promotes . 4.2. An advertisement that succeeds in getting consumers to try the product will be sensible only if the number of
> 1.1. For a monopolist, marginal revenue is (greater/less) than price. 1.2. A monopoly that cuts its price gains revenue from its customers but loses revenue from its customers. 1.3. At a price of $18 per CD, a firm sells 60 CDs. If the slope of the dem
> 4.1. A price-discriminating firm will charge a higher price to consumers with a relatively (elastic/ inelastic) demand and a lower price to consumers with a relatively (elastic/inelastic) demand. 4.2. The aspirin sold in airports is more expensive than a
> 1.1. To gauge living standards across countries with populations of different sizes, economists use ____________. 1.2. In poor countries, the relative prices for nontraded goods (such as household services) to traded goods (such as jewelry) are ________
> 5.1. An increasing-cost industry is one in which the average cost of production as the total output of the industry . 5.2. Arrows up or down: Costs with output in an increasing-cost industry because input prices i
> 3.1. A firm will not shut down in the long run as long as its revenue is (larger/smaller) than the firm’s variable cost. 3.2. Your firm has a total revenue of $500, a total cost of $700, and a variable cost of $600. You
> 2.1. Economic profit equals minus . 2.2. Economic cost equals cost plus cost. 2.3. For a perfectly competitive firm, marginal revenue equals , and to maximize profit, the firm produces the quantity at
> 4.1. A firm’s short-run supply curve shows the relationship between on the horizontal axis and on the vertical axis. 4.2. The part of a firm’s marginal cost curve that is above the minim
> 3.1. The presence of explains the negatively sloped portion of a long-run average-cost curve, and the notion of explains the horizontal portion of the curve. 3.2. Consider the information provided in Figure 23.6. Suppose the output of a large aluminum f
> 1.1. The computation of economic cost is based on the principle of . 1.2. A firm’s implicit cost is defined as the cost of nonpurchased inputs, such as the entrepreneur’s and . 1.3. Economic profit equals minus . 1.4. Fill with “ec
> 4.1. The average cost of electricity (increases/ decreases) as the size of the wind turbine increases. 4.2. For information goods such as a music video distributed online, the cost of producing the first copy is very , but the marginal
> 2.1. The short-run marginal cost curve is shaped like the letter _________ and the short-run average cost curve is shaped like the letter _________. 2.2. The negatively sloped portion of the short-run marginal-cost curve is explained by _________ and th
> 1.1. Based on Figure 22.1, fill in the blanks in the following table to identify different points on the consumer’s budget line. Figure 22.1: 1.2. In Figure 22.1 (above), suppose the price of movies increases to $9. Draw a new budge
> 2.1. In an economy with no government sector or foreign sector, saving must equal investment because a. total demand is equal to consumption and investment. b. total income is equal to consumption and saving. c. total income is equal to total demand.
> 2.1. In Figure 22.5, suppose the price of movies increases from $3 to $6. The increase in price shifts the benefit curve (marginal utility per dollar) for movies (upward/downward). For the initial quantity of six movies, the marginal utility per dollar b
> 4.1. The introduction of cognition into a consumer’s choice between healthy and unhealthy food shifts the curve downward, causing the marginal utility per dollar of to be less than the marginal utility per dollar of . 4.2. C
> 5.1. The 1990 tax on yachts and other luxury goods was shifted forward to and backward to . 5.2. A tax paid in legal terms by producers will be partly shifted forward onto and partly shifted backward onto
> 2.1. You are willing to pay $3,000 to have your windows covered, and Tom’s marginal cost of covering windows is $2,500. If you agree to split the difference, the price is , your consumer surplus is , and Tom&a
> 4.1. In Figure 21.6, the taxi medallion policy prevents mutually beneficial transactions for consumers on the demand curve between points and and producers on the supply curve between points and . Figure 21.6: 4.2. In Figur
> 3.1. Arrow up or down: In Figure 21.5, rent control the quantity of apartments , producer surplus, consumer surplus , and the total market surplus . Figure 21.5: 3.2. In Figure 21.5 (
> 1.1. Consumer surplus equals minus . 1.2. Producer surplus equals minus . 1.3. In Figure 21.1, Tupak’s consumer surplus is , compared to for Thurl. Figure 21.1: 1.4. In Figure 2
> 2.1. Recall the example “Beer Prices and Highway Deaths” from the chapter. A doubling of the tax on beer will reduce the number of highway deaths among young adults by _________ percent. 2.2. Recall the example â
> 6.1. Assume that the elasticity of demand for chewing tobacco is 0.70 and the elasticity of supply is 2.30. Suppose an antichewing campaign decreases the demand for chewing tobacco by 18 percent. The equilibrium price of chewing tobacco will _________ (d
> 5.1. When the price of paper increases from $100 to $104 per ton, the quantity supplied increases from 200 to 220 tons per day. The price elasticity of supply is _________. 5.2. Suppose that in a month the price of movie rentals increases from $2 to $2.
> 5.1. Clear property rights reduce growth in an economy because producers are not able to freely use innovations. ____________ (True/False) 5.2. Which of the following events hinder economic growth? a. Uncertain financial environment b. Reduced savings
> 4.1. The income elasticity of demand is _________ (positive/ negative) for normal goods and _________ (positive/ negative) for inferior goods. 4.2. If a 20 percent increase in income increases the quantity of iPods demanded by 30 percent, the income ela
> 3.1. Demand is _________ on the upper portion of a linear demand curve and _________ on the lower portion of a linear demand curve. 3.2. If Maria spends a fixed dollar amount per week on movie rentals regardless of changes in the price, Maria’s demand f
> 3.1. Net transfers from abroad are a (n) entry on the current account. 3.2. The current, financial, and capital accounts must sum to . 3.3. The balance of payments is divided into three major accounts,
> 2.1. The best measure of the purchasing power of one currency relative to another is the . 2.2. When the U.S. and foreign price levels remain the same but the dollar appreciates, the real exchange rate will . 2.3. The
> 5.1. When prices rose in Mexico faster than in the United States and the nominal exchange rate remained constant, the real exchange rate . 5.2. If a country borrows in dollars, a depreciation of its own currency against the dollar
> 4.1. The government foreign currency for dollars if it wants to peg the exchange rate at a higher rate than would normally prevail in the market. 4.2. If there is an excess supply of a country’s currency at the fixed exchange rate, the
> 3.1. The _________ industry argument is often given to provide a rationale for tariffs for new firms. 3.2. Knowledge gained during production is known as _________ by doing. 3.3. If only one firm can exist in a market, a government may try to subsidize
> 5.1. Price discrimination occurs when a good is sold at _________ (higher/lower/similar/different) prices to different consumers. 5.2. Under global trade rules, the United States was allowed to ban Chinese bicycles because China violated U.S. dumping ru
> 2.1. If a country bans the importation of a particular good, the market equilibrium is shown by the intersection of the _________ curve and the _________ curve. 2.2. The equilibrium price under an import quota is _________ (above/below) the price that o
> 1.1. A country has a comparative advantage if it has a lower _________ cost of producing a good. 1.2. The terms of trade is the rate at which two goods can be _________ for one another. 1.3. Suppose a country has a comparative advantage in shirts but n
> 3.1. Labor market equilibrium occurs at a real wage at which the quantity demanded for labor equals the quantity __________ of labor. 3.2. The labor __________ (demand/supply) curve is based on the decisions of __________ (firms/workers); these decision
> 4.1. The latest trade round is called the _________ round. 4.2. The _________ was formed in 1995 to oversee GATT. 4.3. NAFTA took effect in _________ and was implemented over a _________ year period between _________, Mexico, and _________. 4.4. When
> 3.1. Suppose there is a consumption tax of 20 percent. You earn $1,150, have an income tax rate of 30 percent, and save $100 after tax. Your tax will be equal to . 3.2. A sales tax that is levied at all stages of production is known as a(n) tax. 3.3. M
> 1.1. If a government runs a deficit, it will its outstanding debt. 1.2. Proponents of Ricardian equivalence believe that deficits do not really matter as long as taxes are raised in the future. (True/F
> 2.1. In recent years, many developed countries have found that inflation targeting (increased/ decreased) the autonomy of their central banks, helping them fight inflation. 2.2. In , inflation targeting was adopted in 1992,
> 2.1. If actual inflation is higher than expected inflation, the actual unemployment rate will be _________ than the natural rate. 2.2. James Tobin explained business cycles with rational expectations. _________ (True/False) 2.3. The increase in the fra
> 1.1. The expected real rate of interest is the nominal interest rate plus the expected inflation rate. _________ (True/ False) 1.2. Countries with lower rates of money growth have _________ interest rates. 1.3. If the growth rate of money increases fro
> 4.1. The velocity of money is defined as _________ income divided by the supply of money. 4.2. According to the quantity equation, the product of money supply and velocity is equal to the product of _________ and _________. 4.3. The growth version of t
> 5.1. To eliminate a budget deficit, a government can _________ (increase/decrease) taxes and/or _________ (increase/decrease) spending. 5.2. During hyperinflations the velocity of money tends to _________ sharply. 5.3. Economists call inflation “hyperi
> 3.1. An aggressive union will shift the aggregate supply curve _________, causing prices to and real GDP to _________. 3.2. In the face of an upward shift in the aggregate supply curve, the Fed can increase the supply of money. This will prevent a reces
> 3.1. As the price level increases, the demand for money _________ and interest rates _________. 3.2. If output is above full employment, we expect wages and prices to rise, money demand to increase, and interest rates to fall. _________ (True/False) 3.
> 1.1. Economic models that assume that wages and prices adjust freely to changes in demand and supply are known as __________ models. 1.2. At full employment, there are only frictional and __________ unemployment. 1.3. According to classical economists, a
> 1.1. Wages and prices will fall when unemployment falls below its natural rate. _________ (True/False) 1.2. The short run in macroeconomics is the time period over which _________ do not adjust to economic conditions. 1.3. According to the logic of the
> 2.1. If output is less than potential output, prices _________ and the short-run aggregate supply curve shifts _________. 2.2. Output will automatically return to full employment in the long run if it deviates from full employment. _________ (True/False
> 1.1. We measure the opportunity cost of holding money with _________. 1.2. If interest rate decreases, investment spending _________ (increases/decreases) and money demand _________ (increases/decreases). 1.3. The principle of _________ suggests that t
> 5.1. _________ (Inside/Outside) lags would be longer for the European Central Bank. 5.2. Compared to fiscal policy, the outside lag for monetary policy is longer for monetary policy. _________ (True/ False) 5.3. Current and future short-term interest r
> 4.1. When the Federal Reserve buys bonds on the open market, it leads to _________ (increase/decreases) in the price of bonds. 4.2. To decrease the level of output, the Fed should conduct an open market _________ (sale/purchase) of bonds. 4.3. An open
> 2.1. To increase the supply of money, the Fed should _________ bonds. 2.2. An increase in price levels leads to _________ money demand. 2.3. Banks trade reserves with one another in the _________ market. 2.4. Banks borrow from the Fed at the _________
> 3.1. Interest rates typically rise in booms because the demand for money depends _________ on changes in real income. 3.2. If interest rates are 12 percent per year, the price of a bond that promises to pay $100 next year will be equal to _________. 3.
