Microeconomics Answers

a) Assuming competitive factor markets, graphically illustrate and explain the difference
between marginal revenue product for a competitive output market and a
monopolistic output market.

b) Assuming competitive factor markets, graphically illustrate and discuss the effect of
an increase in the wage rate in a competitive labour market.

c) Graphically derive the long run demand curve in a competitive factor market and
explain the underlying theory (assuming wages decrease).

Given the following information:
P = 20 – 2Q
MC = AC = 4

a) Determine the profit-maximizing output and price charged by a monopolist.
b) Determine the competitive price and output.
c) Graphically illustrate and calculate the deadweight loss due to the monopoly.

a) If the government adopts a ceiling price on rental units, graphically illustrate and explain the effect on consumer surplus and producer surplus.

b) Graphically illustrate the effect on consumer surplus and producer surplus if the government adopts a floor price for an agricultural good.

c) Compare the impact of a ceiling price and floor price on consumer surplus and producer surplus.

If the government announces the Minimum Support Price of Rs 10 per kg of rice, what will be the effect in rice market?

a) Graphically illustrate a perfectly competitive firm incurring a loss in the short run.
Explain what is meant by “shut-down determination” in the short run.

b) If perfectly competitive firms are incurring a loss in the short run, graphically illustrate and explain the adjustments to long-run equilibrium.

c) Graphically derive and explain the underlying theory of the long run industry supply curve, assuming a constant cost industry.

a) Given TC = 30 + 3q + 4q^2 + q^3, determine the values for AFC, AVC, ATC, and MC at
Q = 5.

b) Graphically illustrate and describe the relationship between the cost curves in
part (a).

c) Derive and explain the relationship between marginal cost and marginal product. Describe the law of diminishing marginal returns and how it relates to marginal cost and marginal product.

In a competitive labour market, with one variable factor, the supply of labour to the firm is

a. equal to the marginal expenditure curve.
b. equal to the demand curve for labour.
c. greater than the marginal expenditure curve.
d. equal to the marginal revenue product curve.

If leisure is a normal good, then the income effect of a decrease in wage will

a. decrease the number of hours worked.
b. increase the number of hours worked.
c. increase the number of leisure hours.
d. increase the sum of leisure plus hours worked.

Suppose a small regional airport is served by one of the major airlines, and a new low-cost airline enters the market. If the major airline cuts its air fares in this market to levels that are below its marginal cost in response to the other firm's entry, then the major airline may be engaging in

a. parallel conduct.
b. parallel pricing.
c. predatory pricing.
d. unlawful collusion.

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

a. increase
b. decrease
c. remain unchanged
d. public employees like firefighters cannot earn economic rents