MT 445 - 17 questions


Unit -5, 6, 7, 8 and 9
1. Do the firms in an oligopoly act independently or interdependently? Explain your answer.
2. A monopolistically competitive firm has the following demand and cost structure in the short run:
Output Price FC VC TC TR Profit/Loss
0 $90 $90 $ 0 ____ ____ ________
1 80 ____ 40 ____ ____ ________
2 70 ____ 80 ____ ____ ________
3 60 ____ 140 ____ ____ ________
4 50 ____ 220 ____ ____ ________
5 40 ____ 320 ____ ____ ________
6 30 ____ 440 ____ ____ ________
7 20 ____ 580 ____ ____ ________
a. Complete the table.
b. What level of output maximizes profit or minimizes loss?
c. Should this firm operate or shut down in the short run? Why?

3. Suppose that Wal-World and Tarbo are independently deciding whether to implement a new bar code technology. It is less costly for their suppliers to use one system and the following payoff matrix shows the profits per year for each company resulting from the interaction of their strategies.
  1. Briefly explain whether Wal-World has a dominant strategy.
  2. Briefly explain whether Tarbo has a dominant strategy.
  3. Briefly explain whether there is a Nash equilibrium in this game.
4.How can we measure the opportunity cost of leisure? Why is the supply curve for labor usually upward sloping?

5.In the graph below, assume that the market demand curve for labor is initially D1. Answer the following questions.
  1. What are the equilibrium wage rate and employment level?
  1. What area represents economic rent?
  1. Assume that the price of a substitute resource decreases, other things constant. What happens to demand for labor?
What are the new equilibrium wage rate and employment level?
What happens to economic rent?
  1. Suppose instead that demand for the final product increases, other things constant. Using labor demand curve D1 as your starting point, what happens to the demand for labor?
What are the new equilibrium wage rate and employment level?
What happens to economic rent?


6.. Use the following data to answer the questions below. Assume a perfectly competitive product market.
Units of Labor Units of Output
0 0
1 8
2 12
3 17
4 21
5        23
  1. Calculate the marginal revenue product at each level of labor input if output sells for $4 per unit.
  2. If the wage rate is $15 per hour, how much labor will be hired?
  3. What is the firm’s total revenue and total amount paid for labor at the level of labor input you determined in (b)?

7. Why does inflation make nominal GDP a poor measure of the increase in total production?

8. Which component of GDP will be affected by each of the following transactions involving FlyCheap Airlines? If you do not believe any component will be affected, briefly explain why.
i. You purchase a ticket on a FlyCheap Airlines to visit your niece.
ii. FlyCheap Airlines purchases a new jetliner from Boeing.
iii. FlyCheap Airlines purchases new seats to be installed on a jetliner it already owns.
iv. FlyCheap Airlines purchases 200 million gallons of fuel.
v. A French citizen purchases a ticket to fly on a FlyCheap flight from Paris to New York.
vi. The city of Nashville agrees to spend funds to extend one of the runways so that FlyCheap will be able to land larger jets.

9. Use the table to answer the following questions.

Year

Real GDP (Billions of 2000 Dollars)

1993

$7,113

1994

7,101

1995

7,337

1996

7,533

1997

7,836

i. Calculate the growth rate of real GDP for each year from 1994 to 1997.
ii. Calculate the average annual growth rate of real GDP for the period from 1994 to 1997.
iii. How does the average annual growth rate you calculated in (ii) above compare to the average growth rate the U.S. normally expects?

10. In an open economy, trade is allowed between countries. Assume a consumer purchases $1,000 worth of furniture manufactured in China. Answer the following:
  1. Which component(s) of GDP are impacted by this purchase?
  2. Does GDP increase, decrease or stay the same? Briefly explain why.
  3. Does your answer change if the company in China is a U.S.-owned company? Why or why not?

11. Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither, or both. Which curve shifts, and in which direction? What happens to aggregate output and the price level in each case?

a. The price level changes

i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?
b. Consumer confidence declines
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?
c. The supply of resources increases
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?

d. The wage rate increases
i. Which curve shifts?
ii. Which direction does it shift?
iii. What happens to aggregate output?
iv. What happens to the price level?
12.  Determine whether the following statements are true or false.
i. Some people who are officially unemployed are not in the labor force.
ii. Some people in the labor force are not working.
iii. Everyone who is not unemployed is in the labor force.
iv. Some people who are not working are not unemployed.

13 . Refer to the following data on the U.S. consumer price index and answer the questions below.
Year CPI Year CPI Year CPI Year CPI
1988 118.3 1993 144.5 1998 163.0 2003 184.0
1989 124.0 1994 148.2 1999 166.6 2004 188.9
1990 130.7 1995 152.4 2000 172.2 2005 195.3
1991 136.2 1996 156.9 2001 177.1 2006 201.8
1992 140.3 1997 160.5 2002 179.9

a. Compute the inflation rate for each year 1989-2006.
b. Which years were years of inflation?
c. In which years did deflation occur?
d. In which years did disinflation occur?
e. Was there hyperinflation in any year?

14. Determine whether each of the following is counted in the M1 measure of the money supply:
i.The coins in your piggy bank.
ii.The funds in your checking account at First National Bank.
iii.The funds in your savings account at Second National Bank.
iv.The traveler’s check you have left over from your trip to Germany.
v.The available balance on your Citico Gold MasterCard.

15. Refer to the simplified balance sheet for a bank and answer the following questions.
Assets Liabilities
Reserves $10,000 Deposits $70,000
Loans $66,000 Stockholder's equity $6,000
a.If the required reserve ratio is 5 percent, how much in excess reserves does this bank hold?
b. What is the maximum amount this bank can expand its loans?

c.What will happen to the M1 money supply if it makes the loans in (b) above and those funds are deposited into another bank by the borrowers?


16. Assume the interest rate on a Treasury bill is 2 percent and will pay its owner $1,000 when it matures in one year.

i. What is the price of the Treasury bill in today’s market?

ii. Suppose that the Fed engages in open market sales which results in the interest rate on new one-year Treasury bills rising to 3 percent. What will happen to the price of these existing Treasury bills with rates of 2 percent? Why?


17. Identify each of the following events as:

a) part of an expansionary fiscal policy
b) part of a contractionary fiscal policy
c) or not part of fiscal policy

i.The corporate income tax rate is increased.
ii.Defense spending is increased.
iii.Families are allowed to deduct all daycare expenses from their federal income taxes.
iv. The individual income tax rate is decreased.
v. The State of New York builds a new highway.


Get Answer from Here