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c. An excess of price over marginal cost is the market's way of signalling the need for more production of a good. d. The more profitable a firm, the greater its monopoly power. e. The monopolist has a pricing policy the competitive producer does not. f. With respect to resource allocation, the interests of the seller and of society coincide in a purely competitive market but conflict in a monopolized market. g. In a sense the monopolist makes a profit for not producing the monopolist produces...
Info Nmi
'Indicates break-even income. Determined by dividing the minimum income by the benefit-reduction rate. 'Indicates break-even income. Determined by dividing the minimum income by the benefit-reduction rate. lt www.un.org esa socdev poverty.htm gt UN declares 1997-2006 the Decade for the Eradication of Poverty income of 16,000, transfer payments are zero. The level of earned income at which the transfer payments disappear is called the break-even income. We might criticize plan 1 on the grounds...
Info Ark
5. KEY QUESTION Suppose a pure monopolist is faced with the demand schedule shown in the next column and the same cost data as the competitive producer discussed in question 4 at the end of Chapter 9. Calculate the missing total-revenue and marginal-revenue amounts, and determine the profit-maximizing price and profit-earning output for this monopolist. What is the monopolist's profit Verify your answer graphically and by comparing total revenue and total cost.
Microeconomics Of Resource Markets
2. KEY QUESTION Explain why economic rent is a surplus payment when viewed by the economy as a whole but as a cost of production from the standpoint of individual firms and industries. Explain Rent performs no 'incentive function' in the economy. 3. If money is not an economic resource, why is interest paid and received for its use What considerations account for the fact that interest rates differ greatly on various types of loans Use those considerations to explain the relative sizes of the...
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KEY QUESTION Briefly discuss the major causes of income inequality. With respect to income inequality, is there any difference between inheriting property and inheriting a high IQ Explain. Use the leaky-bucket analogy to discuss the equality-efficiency tradeoff. Should a nation's income be distributed to its members according to their contributions to the production of that total income or according to the members' needs Should society attempt to equalize income or economic opportunities Are...
Maximizing Profit
Will 50 units of output maximize the firm's profit No, because the profit-maximizing terms of equation 2 are not satisfied when the firm employs three units of labour and two of capital. To maximize profit, each input should be employed until its price equals its marginal revenue product. But for three units of labour, labour's MRP in column 5 is 12 while its price is only 8 the firm could increase its profit by hiring more labour. Similarly, for two units of capital, we see in column 5' that...
Info Coy
McConnell-Brue-Barbiero Microeconomics, Ninth Canadian Edition IV. Microeconomics of Government and Public Policy Part Four Microeconomics of Government and PubLic Poucy 4. KEY QUESTION Why are spillover costs and spillover benefits also called negative and positive externalities Show graphically how a tax can correct for a spillover cost and how a subsidy to producers can correct for a spillover benefit. How does a subsidy to consumers differ from a subsidy to producers in correcting for a...
The Organization And The Costs Of Production
materials. He has 40,000 of his own funds invested in equipment pottery wheels, kilns, and so forth that could earn him 4000 per year if alternatively invested. He has been offered 15,000 per year to work as a potter for a competitor. He estimates his entrepreneurial talents are worth 3000 per year. Total annual revenue from pottery sales is 72,000. Calculate the accounting profit and the economic profit for Gomez's pottery firm. 5. Which of the following are short-run and which are long-run...
Poverty In The Voices Of Poor People
While statistics tell us much about poverty and inequality, the statements below attest to the human suffering caused by insufficient material means in many nations. being turns out to be very important. Lack of food, shelter, and clothing is mentioned everywhere as critical. In Kenya a man says Don't ask me what poverty is because you have met it outside my house. Look at the house and count the number of holes. Look at my utensils and the clothes I am wearing. Look at everything and write...
B 2 24
5. Explain graphically how indifference analysis can be used to derive a demand curve. 6. Advanced analysis Demonstrate mathematically that the equilibrium condition MRS PB PA is the equivalent of the utility-maximizing rule MUA PA MUB PB. McConnell-Brue-Barbiero II. Microeconomics of Microeconomics, Ninth Product Markets Canadian Edition 8. The Organization and Costs of Production McConnell-Brue-Barbiero II. Microeconomics of Microeconomics, Ninth Product Markets Canadian Edition 8. The...
terms and concepts Dnc
plant, p. 181 firm, p. 181 industry, p. 181 sole proprietorship, p. 181 partnership, p. 181 corporation, p. 181 stocks, p. 183 bonds, p. 183 limited liability, p. 183 double taxation, p. 183 principle-agent problem, p. 183 explicit costs, p. 185 implicit costs, p. 185 normal profit, p. 185 economic profit, p. 186 short run, p. 187 long run, p. 187 total product TP , p. 188 marginal product MP , p. 188 average product AP , p. 188 law of diminishing returns, p. 188 fixed costs, p. 192 variable...
Eliminating Occupational Segregation
Now assume that through legislation or sweeping changes in social attitudes, discrimination disappears. Women, attracted by higher wage rates, shift from occupation Z to X and Y one million women move into X and another one million move into Y. Now there are four million workers in Z and occupational segregation is eliminated. At that point there are four million workers in each occupation, and wage rates in all three occupations are equal, here at B. That wage equality eliminates the incentive...
Info Nnd
a. Show graphically the labour supply and marginal resource labour cost curves for this firm. Explain the relationship of these curves to one another. b. Plot the labour demand data of question 2 in Chapter 14 on the graph used in a. What are the equilibrium wage rate and level of employment Explain. Suppose the formerly competing firms in question 3 form an employers' association that hires labour as a monopsonist would. Describe verbally the effect on wage rates and employment. Adjust the...
Market Model
Number of firms Type of product Control over price Conditions of entry Nonprice competition Some, but within rather narrow limits Considerable emphasis on advertising, brand names, trademarks Standardized or differentiated Limited by mutual interdependence considerable with collusion Significant obstacles Typically a great deal, particularly with product differentiation Steel, automobiles, farm implements, many household appliances A firm in a purely competitive market that cannot change market...
Cost Complications
Our evaluation of pure monopoly has led us to conclude that, given identical costs, a purely monopolistic industry will charge a higher price, produce a smaller output, and allocate economic resources less efficiently than a purely competitive industry. These inferior results originate with entry barriers characterizing monopoly. Now we must recognize that costs may not be the same for purely competitive and monopolistic producers. The unit cost incurred by a monopolist may be either larger or...
Economies of Scale 1
Modern technology in some industries is such that economies of scale declining average total cost with added firm size are extensive. So, a firm's long-run average-cost schedule will decline over a wide range of output. Given market demand, only a few large firms, or in the extreme, only a single large firm, can achieve low average total costs. Figure 10-1 indicates economies of scale over a wide range of outputs. If total consumer demand is within that output range, then only a single producer...
Info Krg
monetary payments a firm must make to an outsider to obtain a resource. monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market equal to what the resource could have earned in the best-paying alternative employment includes a normal profit . A firm's explicit costs are the monetary payments or cash expenditures it makes to those who supply labour services, materials, fuel, transportation services, and the like. Such money payments are...
Internet Application Questions Rjm
Suppose that you operate a purely competitive firm that buys and sells foreign currencies. Also suppose that yesterday, your business activity consisted of buying 100,000 Swiss francs at the market exchange rate and selling them for a 3 percent commission. Go to the Bank of Canada's website lt www.bankofcanada.ca gt and select, in order, Currency and Currency Converter. What was your total revenue in Canadian dollars yesterday Be sure to include your commission. Why would your profit for the...
M Phk
MACROECONOMICS The part of economics concerned with the economy as a whole with such major aggregates as the household, business, and governmental sectors and with measures of the total economy. MARGINAL ANALYSIS The comparison or marginal extra or additional benefits and marginal costs, usually for decision making. MARGINAL COST MC The extra additional cost of producing one more unit of output equal to the change in total cost divided by the change in output and in the short run to the change...
Voting Outcomes
The lower part of Table 19-1 shows the outcomes of three hypothetical decisions of the majority vote. In the first, national defence wins against the road because a majority of voters Adams and Conrad prefer national defence to the road. In the second election to see whether this community wants a road or a severe-weather warning system, a majority of voters Adams and Benson prefer the road. We have determined that the majority of people in this community prefer national defence to a road and...
Statistical Discrimination
Judging individuals on the average characteristic of the group to which they belong rather than on their own personal characteristics. STOCKS CORPORATE Ownership shares in a corporation. SUBSTITUTE GOODS Products or services that can be used in place of each other. When the price of one falls the demand for the other falls, and conversely with an increase of price. SUBSTITUTION EFFECT 1 A change in the quantity demanded of a consumer good that results from a change in its relative...
Study Questions 1
1. Describe the four major economic flows that link Canada with other nations. Provide a specific example to illustrate each flow. Explain the relationships between the top and bottom flows in Figure 5-1. 2. How important is international trade to the Canadian economy Who is Canada's most important trade partner How can persistent trade deficits be financed Trade deficits mean we get more merchandise from the rest of the world than we provide them in return. Therefore, trade deficits are...
Ing The Most From
The economic problem is at the heart of the definition of economics stated in Chapter 1 Economics is the social science concerned with the roblem of using scarce resources to attain the maximum fulfillment of society's unlimited wants. Economics is concerned with doing the best with what we have. Economics is thus the social science that examines efficiency the best use of scarce resources. Society wants to use its limited resources efficiently it desires to produce as many goods and services...
The Short Run Profit or Loss
The monopolistically competitive firm maximizes its profit or minimizes its loss in the short run just as the other firms we have discussed do by producing the output at which marginal revenue equals marginal cost MR MC . In Figure 11-2 a the firm produces output Q1, where MR MC. As shown by demand curve D1, the firm then can charge price P1. It realizes an economic profit, shown by the grey area P1 - A1 x Q1j. But with less favourable demand or costs, the firm may incur a loss in the short...
Neither Productive nor Allocative Efficiency
In monopolistic competition, neither productive nor allocative efficiency is achieved in long-run equilibrium. We show this in Figure 11- , which includes an enlargement of part of Figure 11-2 c . First note that the profit-maximizing price P slightly exceeds the lowest average total cost, A4. Therefore, in producing the profit-maximizing output Q , the firm's average total cost is slightly higher than optimal from society's perspective productive efficiency is not achieved. Also note that the...
Shifts In Production Possibilities Curves
Canada has recently experienced a spurt of new technologies relating to computers, communications, and biotechnology. Technological advances have dropped the prices of computers and greatly enhanced their speed. Cellular phones and the Internet have increased communications capacity, enhancing production and improving the efficiency of markets. Advances in biotechnology, specifically genetic engineering, have resulted in important agricultural and medical discoveries. Many Part One An...
Correcting For Spillover Costs
Government can do two things to correct the overallocation of resources. Both solutions are designed to internalize external costs that is, to make the offending firm pay the costs rather than shift them to others Legislation In cases of air and water pollution, the most direct action is legislation prohibiting or limiting the pollution. Such legislation forces potential polluters to pay for the proper disposal of industrial wastes here, by installing smoke-abatement equipment or...
The Income Effect
The income effect is the impact that a change in a product's price has on a consumer's real income and, consequently, on the quantity of that good demanded. Let's suppose our product is a coffee drink such as a latte or cappuccino. If the price of such drinks declines, the real income or purchasing power of anyone who buys them increases that is, they are able to buy more with the same nominal income. The increase in real income will be reflected in increased purchases of many normal goods,...
Rule for Employing Resources MRP MRC
The MRP schedule, shown as columns 1 and 6, is the firm's demand schedule for labour. To explain why, we must first discuss the rule that guides a profit-seeking firm in hiring any resource To maximize profit, a firm should hire additional units of a specific resource as long as each successive unit adds more to the firm's total revenue than it adds to total cost. Economists use special terms to designate what each additional unit of labour or other variable resource adds to total cost and what...
Factors Of Production
Economic resources land, capital, labour, and entrepreneurial ability. The entrepreneur is an innovator the one who commercializes new products, new production techniques, or even new forms of business organization. The entrepreneur is a risk bearer. The entrepreneur in a market system has no guarantee of profit. The reward for the entrepreneur's time, efforts, and abilities may be profits or losses. The entrepreneur risks not only his or her invested funds but those of associates and...
Legal Cartel Theory
The regulation of potentially competitive industries has produced the legal cartel theory of regulation. In place of socially minded officials forcing regulation on natural monopolies to protect consumers, holders of this view see practical politicians as supplying regulation to local, regional, and national firms that fear the impact of competition on their profits or even on their long-term survival. These firms desire regulation because it yields a legal monopoly that can guarantee a profit....
Natural Monopoly
A natural monopoly exists when economies of scale are so extensive that a single firm can supply the entire market at a lower unit cost than could a number of competing firms. Clear-cut circumstances of natural monopoly are relatively rare, but such conditions exist for many ublic utilities, such as local electricity, water, and natural gas. As we discussed in Chapter 10, large-scale operations in some cases are necessary to obtain low unit costs and a low product price. Where natural monopoly...
Potential Negative Effects of Advertising
Not all the effects of advertising are positive, of course. Much advertising is designed simply to persuade consumers that is, to alter their preferences in favour of the advertiser's product. A television commercial that indicates that a popular personality drinks a particular brand of soft drink and, therefore, that you should too conveys little or no information to consumers about price or quality. In addition, advertising is sometimes based on misleading and extravagant claims that confuse...
Three The Monopolist Sets Prices in the Elastic Region of Demand
The total-revenue test for price elasticity of demand is the basis for our third implication. Recall from Chapter 6 that the total-revenue test reveals that when demand is elastic, a decline in price will increase total revenue. Similarly, when demand is inelastic, a decline in price will reduce total revenue. Beginning at the top of demand curve D in Figure 10- a , observe that as the price declines from 172 to approximately 82, total revenue increases and marginal revenue, therefore, is...
Exploiting University and Government Scientific Research
Only a small percentage of R amp D spending goes to basic scientific research. The reason that percentage is so small is that scientific principles, as such, cannot be patented, nor do they usually have immediate commercial uses. Yet new scientific knowledge is highly important to technological advance. For that reason, entrepreneurs study the scientific output of university and government laboratories to identify discoveries with commercial applicability. Government and university labs have...
Charter Summary Qab
1. Technological advance is evidenced by new and improved goods and services and new and improved production or distribution processes. In economists' models, technological advance occurs only in the very long run. 2. Invention is the discovery of a product or process through the use of imagination, ingenuity, and experimentation. Innovation is the first successful commercial introduction of a new product, the first use of a new method, or the creation of a new form of business enterprise....
Government and Trade
protective tariff A tariff designed to shield domestic producers of a good or service from the competition of foreign producers. If people and nations benefit from specialization and international exchange, why do governments sometimes try to restrict the free flow of imports or encourage exports What kinds of world trade barriers can governments erect, and why would they do so There are four means by which governments commonly interfere with free trade Protective tariffs are excise taxes or...
Info Hoi
Plot the total, marginal, and average products and explain in detail the relationship between each pair of curves. Explain why marginal product first rises, then declines, and ultimately becomes negative. What bearing does the law of diminishing returns have on short-run costs Be specific. When marginal product is rising, marginal cost is falling. When marginal product is diminishing, marginal cost is rising. Illustrate and explain graphically. 7. Why can the distinction between fixed costs and...
Appendix Study Questions 1
1. What information is embodied in a budget line What shifts occur in the budget line when money income a increases and b decreases What shifts occur in the budget line when the price of the product shown on the vertical axis a increases and b decreases 2. What information is contained in an indifference curve Why are such curves a downward sloping and b convex from the origin Why does total utility increase as the consumer moves to indifference curves farther from the origin Why can't...
Pure Competition And Consumer Surplus
Pure competition provides consumers with the largest utility surplus that is consistent with keeping the product in production. In almost all markets, consumers collectively obtain more utility total satisfaction from their purchases than the amount of their expenditures product price x quantity . This surplus of utility arises because some consumers are willing to pay more than the equilibrium price but need not do so. Consider the market for oranges depicted in the figure below. The demand...
Present Choices And Future Possibilities
An economy's current position on its production possibilities curve is a basic determinant of the future location of that curve. Let's designate the two axes of the production possibilities curve as goods for the future and goods for the resent, as in Figure 2-5. Goods for the future are such things as capital goods, research and education, and preventive medicine. They increase the quantity and quality of property resources, enlarge the stock of technological information, and improve the...
Info Kch
Some market transactions get a bad name that is not warranted. Tickets to athletic and artistic events are sometimes resold at higher-than-original prices a market transaction known by the term scalping. For example, the original buyer may resell a 50 ticket to an NHL game for 200, 250, or more. The media often denounce scalpers for ripping off buyers by charging exorbitant prices. Scalping and extortion are synonymous in some people's minds. But is scalping really sinful We must first...
FairReturn Price P ATC
It is possible for the socially optimal price, Pr, that equals marginal cost to be so low that average total costs are not covered, as is the case in Figure 10-9. The result is a loss for the firm. The reason lies in the basic character of our firm. Because it is required to meet the heaviest peak demands both daily and seasonally for natural gas, it has substantial excess production capacity when demand is relatively normal. Its high level of investment in production facilities and economies...
Allocative Efficiency 1
Technological advance as embodied in product or service innovation enhances allocative efficiency by giving society a more preferred mix of goods and services. 1 Douglas F. Greer, Industrial Organization and Public Policy, 3rd ed. New York Macmillan, 1992 , pp. 680-687. chapter twelve technology, r amp d, and efficiency Recall from our earlier discussion that consumers buy a new product rather than an old product only when buying the new one increases the total utility obtained from their...
Pure Competition
Does a pure competitor have a strong incentive and strong ability to undertake R amp D On the positive side, strong competition provides a reason for these firms to innovate competitive firms tend to be less complacent than monopolists. If a pure competitor does not seize the initiative, one or more rivals may introduce a new product or cost-reducing production technique that could drive the firm from the market. As a matter of short-term profit and long-term survival, the pure competitor is...
Economies Of Scale Once Again
Where there are extensive economies of scale, market demand may not be sufficient to support a large number of competing firms, each producing at minimum efficient scale. In such cases, an industry of one or two firms would have a lower average total cost than would the same industry made up of numerous competitive firms. At the extreme, only a single firm a natural monopoly might be able to achieve the lowest long-run average total cost. Some firms relating to new information technologies, for...
Charter Summary
1. Price elasticity of demand measures consumer response to price changes. If consumers are relatively sensitive to price changes, demand is elastic. If they are relatively unresponsive to price changes, demand is inelastic. 2. The price elasticity coefficient Ed measures the degree of elasticity or inelasticity of demand. The coefficient is found by the formula percentage change in Ed quantitydemandedof X Economists use the averages of prices and quantities under consideration as reference...
Info Drt
measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are 18, 6, 4, and 24, respectively, and that Ricardo has an income of 106. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility How many dollars will Ricardo choose to save Check your answers by substituting them into the algebraic statement of the utility-maximizing...
Economic Profit or Pure Profit
Obviously, then, economists use the term profit differently from the way accountants use it. To the accountant, profit is the firm's total revenue less its explicit costs or accounting costs . To the economist, economic profit is total revenue less economic costs explicit and implicit costs, the latter including a normal profit to the entrepreneur . So, when an economist says a certain firm is earning only enough revenue to cover its costs, this means it is meeting all explicit and implicit...
Xinefficiency
Failure to produce any specific output at the lowest average and total cost possible. pub econrev ser html morton.html gt Monopoly and x-efficiency produce its Windows program only once. Then, at very low marginal cost, Microsoft delivers its program by disk to millions of consumers. The same is true for Internet service providers, music producers, and wireless communication firms. Because marginal costs are so low, the average total cost of output declines as more customers are added. Network...