Question 2

  • Command economies have no private property and no individual property rights.

    FREE MARKET ECONOMY VERSUS COMMAND ECONOMY Free market economy is controlled by private owners Government has little influence over the economic activities Market is based on the division of labors Price of goods and services is set by the supply and demand Ownership of land and resources are with individuals or firms Demand decides the quantity of output Income distribution is not similar Command economy is controlled by the government Government has its full control over all the economic activities No division of labor is involved Prices are determined by the government decision makers Land and other resources are owned by the government Government decides the quantity of output Fairly equal income distribution practices Pediaa.com

Question 5

Factors That Shift Supply Changes in input prices If the price of an input used to produce A rises, . . . If the price of an input used to produce A falls, Changes in the prices of related goods or services If A and B are substitutes in production ... If A and B are complements in production . . . Changes in technology . and the price of B rises, . . . . and the price of B falls, . . and the price of B rises, . . . . and the price of B falls, . If the technology used to produce A improves, ... Changes in expectations If the price of A is expected to rise in the future, .. If the price of A is expected to fall in the future, . . . Changes in the number of producers If the number of producers of A rises, .. . If the number of producers of A falls, . supply of A decreases. supply of A increases. supply of A decreases. supply of A increases. supply of A increases. supply of A decreases. supply of A increases. supply of A decreases today. supply of A increases today. . market supply of A increases. . market supply of A decreases.

Question 6

The Cross-Price Elasticity of Demand The cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. It is calculated as the percentage change in quantity de- manded of good 1 divided by the percentage change in the price of good 2. That is, Percentage change in quantity demanded of good 1 Cross-price elasticity of demand = Percentage change in the price of good 2

Question 12

  • Long-run (Profitability)

    Profitability condition (minimum ATC = break-even price) P \> minimum ATC P = minimum ATC P < minimum ATC Result Firm profitable. Entry into industry in the long run. Firm breaks even. No entry into or exit from industry in the long run. Firm unprofitable. Exit from industry in the long run.

  • Short-run (Production)

    Production condition (minimum AVC = shut-down price) P \> minimum AVC P = minimum AVC P < minimum AVC Result Firm produces in the short run. If P < minimum ATC, firm covers variable cost and some but not all of fixed cost. If P \> minimum ATC, firm covers all variable cost and fixed cost. Firm indifferent between producing in the short run or not. Just covers variable cost. Firm shuts down in the short run. Does not cover variable cost.

Question 19

19. In microeconomics, the short run is defined as which of the following? (A) A period that is less than one year (B) A period that is between one year and four years (C) A period that is too shon for a firm to be able to chan e its level of output D) A penod during which some Inputs rn a firm's production process cannot be chan ed (E) A period during which a firm's fixed costs exceed its variable costs

  • In microeconomics, the long run is the conceptual time period in which there are no fixed factors of production, so that there are no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry.

  • The long run contrasts with the short run, in which some factors are variable and others are fixed, constraining entry or exit from an industry.

  • In macroeconomics, the long run is the period when the general price level, contractual wage rates, and expectations adjust fully to the state of the economy, in contrast to the short run when these variables may not fully adjust.

Question 26

Introduction to Game Theory Game theory is the branch of decision theory concerned with interdependent decisions. The problems of interest involve multiple participants, each of whom has individual objectives related to a common system or shared resources. Because game theory arose from the analysis of competitive scenarios, the problems are called games and the participants are called players. But these techniques apply to more than just sport, and are not even limited to competitive situations. In short, game theory deals with any problem in which each player's strategy depends on what the other players do. Situations arise frequently, in all walks of life. A few examples in which game theory could come in handy include: Friends choosing where to go have dinner Parents trying to get children to behave Commuters deciding how to go to work Businesses competing in a market Diplomats negotiating a treaty Gamblers betting in a card game

Question 27

Monopolistic Competition Long-Run Equilibrium 1 MR = MC thismatter.com Quantity 2 Capacity 3 Note that where MC rises above MR , the firm would incur greater costs than it would receive in additional revenue, which is why the firm maximizes its profit by producing only that quantity where MR = MC , and charging the price at f. 2 Market Price = Marginal Cost = Allocative Efficiency 3 Productive Efficiency = Minimum ATC Excess Capacity = Quantity Produced at Minimum profit (MR = MC . ATC - Quantity that yields the greatest

Revenue, Cost, price Price - ATC thismatter.com Market Price yielding maximum profits. Monopoly profit = (P -ATC) x Q ATC for quantity produced when MR = MC Quantity Supplied 2 Quantity ATC Average Total Cost MR = Marginal Revenue MC = Marginal cost f Productive Efficiency: MC = Minimum ATC 2 Allocative Efficiency: MC Market Price Monopoly Profit = ( Price - ATC ) x Quantity

Question 40

40. Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit- maximizing equilibrium ? (A) Economic profits equal zero, and price equals marginal cost. (B) Economic profits equal zero, and price equals marginal revenue. (C) Marginal revenue equals marginal cost, and (D) Economic profits equal zero, and marginal revenue equals marginal cost. onorruc pro Its equa zero, an pnce exceeds marginal cost.

Price c Q MC ATC Quantity

price This strategy is based on the fact that the total profit reaches its maximum point where marginal revenue equals marginal profit . This is the case because the firm will continue to produce until marginal profit is equal to zero, and marginal profit equals the marginal revenue (MR) minus the marginal cost (MC). Marginal Cost Profit Maximization Strategy - Boundless https://www.boundless.com/.../marginal-cost-profit-maximization-strategy-251-12348/ Quantity

Question 44

Marginal social cost at QMKT Optimal Pigouvian tax on pollution Marginal social benefit at QNk7 Marginal social cost, marginal social benefit QMKT $400 300 200 100 O Socially optimal quantity of pollution MSC0f pollution The market outcome is ineficient: marginal social cost of pollution exceeds marginal social benefit. MSB of pollution Quantity of pollution emissions (tons) Market-determined quantity of pollution

Question 47

The bowed-out production possibilities curve for Alpine Sports illustrates the law of increasing opportunity cost. Scarcity implies that a production possibilities curve is downward sloping; the law of increasing opportunity cost implies that it will be bowed out, or concave, in shape. 2.2 The Production Possibilities Curve - Flat World Knowledge

  • The bow-out shape occurs because economic resources are not perfectly adaptable to the production of different goods and, thus, the opportunity cost of producing a good will increase as more and more resources are allocated to the production of that good.

Question 50

  • If the monopolist decreases its price, both total revenue and profits will decrease

    6-5 FIGURE Price $10 9 8 7 6 5 4 3 2 1 o Total revenue $25 24 21 16 9 The Price Elasticity of Demand Elastic Unit-elastic Changes Along the Demand Curve Demand Schedule and Total Revenue for a Linear Demand Curve 1 Price $0 1 2 3 4 5 6 7 8 9 10 Quantity demanded 10 9 8 7 6 5 4 3 2 Total revenue $0 9 16 21 24 25 24 21 16 9 2 2 3 3 4 4 5 6 6 7 7 8 8 Inelastic 9 10 Quantity 9 10 Quantity The upper panel shows a demand curve corre- sponding to the demand schedule in the table. The lower panel shows how total revenue changes along that demand curve: at each price and quantity combination, the height of the bar rep- resents the total revenue generated. You can see that at a low price, raising the price increases total revenue. So demand is inelastic at low prices. At a high price, however, a rise in price reduces total revenue. So demand is elastic at high prices. Demand is elastic: a higher price reduces total revenue. Demand is inelastic: a higher phce increases total revenue.

    Revenue, Cost, price Price - ATC thismatter.com Market Price yielding maximum profits. Monopoly Profit = (P -ATC) x Q ATC for quantity produced when MR = MC Quantity Supplied 2 4, Quantity

Question 53

How does Monopolistic Competition differ from Perfect Competition? Number of producers (sellers in the market) Types of goods and services available for consumers Does the firm have control over their own prices? Is branding / marketing important? Are entry barriers zero, low or high? Perfect Competition Many Homogeneous NO — price takers NO Zero barriers Does this market structure lead to allocative yes: Price = MC efficiency in the long run? Does this market structure lead to yes - min LRAC productive efficiency in the long run? Monopolistic Competition Many Differentiated Yes — some pricing power Yes — key non-price competition Low barriers Not quite (P\>MC) No — higher LRAC

Question 59

What is Market Failure? Market failure is when the price mechanism leads to an inefficient allocation of resources and a deadweight loss of economic welfare Negative externalities De-rnerit goods Positive externalities Information failures Public goods mohdP91y%— Monopolies Merit goods Immobility of factor inputs tutor2u

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