Question 1

Suppose a firm has 10 employees,all of whom desire a more pleasant work environment.Accordingly,they are considering removing litter from the grounds of the plant.Each employee has an inverse demand for "clean grounds" of P = 100 - 2Q,where Q is the number of empty beer cans removed from the premises.The marginal cost of removing beer cans is $1 per can.
a.What is the socially efficient quantity of cans to remove?
b.How much would each person have to pay per can to remove the socially efficient quantity?

Accepted Answer

The answer of Suppose a firm has 10 employees,all of...

Question 2

Consider the monopoly in the figure below with price regulated at $20 per unit.Monopoly profits at the regulated price are:
A) $100.
B) $200.
C) $1,350.
D) There is insufficient information to determine the monopoly profits.

Accepted Answer

The answer of Consider the monopoly in the figure below...

Question 3

Suppose a monopoly faces an inverse demand curve of P = 100 − 2Q and has constant marginal cost of 6Q.If the government is considering legislation that would regulate price to the competitive level,what is the maximum amount the monopoly would spend on (legal)lobbying activities designed to thwart the regulation?
A) $62.50
B) $500
C) $562.50
D) None of the preceding answers is correct.

Accepted Answer

The competitive price is found where P = MC, but since MC is given as 6Q, not a constant value, the premise for finding a competitive level price as stated is flawed. Therefore, without accurate information on how MC equals price, we cannot determine the competitive price or the monopoly's profit at that price, making it impossible to calculate the maximum amount the monopoly would spend on lobbying.

Question 4

Suppose a monopoly faces an inverse demand curve of P = 6 − Q and has constant marginal cost of 2.If the government is considering legislation that would regulate price to the competitive level,what is the maximum amount the monopoly would spend on (legal)lobbying activities designed to thwart the regulation?
A) $2
B) $4
C) $6
D) None of the answers are correct.

Accepted Answer

The competitive level of price is where P = MC, which in this case is P = 2. At this price, the monopoly's quantity demanded would be Q = 4.

If the government regulates price to this level, the monopoly would earn a profit of (6 - 2) * 4 = $16.

If the monopoly spends x amount on lobbying, its profit (after lobbying expenses) would be (6 - 2 - x) * Q = (4 - 0.5x) * 4. To maximize this profit, the monopoly would differentiate it with respect to x and set it equal to zero:

d[(4 - 0.5x) * 4]/dx = -2 + x = 0

Thus, the maximum amount the monopoly would spend on lobbying is x = $2.

Question 5

Consider the monopoly in the figure below with price regulated at $20 per unit.The deadweight loss under the regulated price is:
A) $150.
B) $1,350.
C) $2,300.
D) There is insufficient information to compute the deadweight loss at the regulated price.

Accepted Answer

The deadweight loss is the triangular area between the supply and demand curves, from the quantity produced under perfect competition (where price equals marginal cost) to the quantity produced under monopoly (where price is set above marginal cost). In this case, the competitive price is $14 (where supply equals demand) and the monopoly price is $20. The quantity produced under each scenario is 8 and 5, respectively. Therefore, the deadweight loss is:
(1/2) x (20-14) x (8-5) = $18 per unit
The total deadweight loss is $18 x 75 = $1,350.

Question 6

A lump-sum tariff is:
A) a fixed fee that an importing firm must pay the domestic government in order to have the legal right to sell the product in the domestic market.
B) the fee an importing firm must pay to the domestic government on each unit it brings into the domestic market.
C) a restriction limiting the quantity of imported goods that can legally enter a domestic market.
D) None of the statements are correct.

Accepted Answer

A lump-sum tariff is a fixed fee that an importing firm must pay the domestic government in order to have the legal right to sell the product in the domestic market.

Question 7

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.What is the total supply of sugar in the domestic market? A) Q = 250 + 7P B) Q = 800 + 2P C) Q = 850 + P D) Q = 150 + 3P

Accepted Answer

The total supply of sugar in the domestic market is the sum of domestic supply and foreign supply, which is (100 + 4P) + (150 + 3P) = 250 + 7P.

Question 8

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.How many units of sugar will domestic producers supply after the quota is imposed? A) 500 B) 350 C) 560 D) 640

Accepted Answer

Before the quota, the domestic supply is Q^d = 700 − 2P and foreign supply is Q^SF = 150 + 3P, leading to a total supply of Q^T = 850 + P. With the quota of 100, the domestic supply is limited to 600 units (700 − 2(100)), and the remaining demand of 450 units (100 + 4(100) + 150) is met by foreign supply. Therefore, the domestic producers will supply 600 units of sugar after the quota is imposed.

Question 9

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.What is the domestic market price of sugar? A) 100 B) 110 C) 90 D) 150

Accepted Answer

We need to find the domestic market price, which is where the domestic supply and demand intersect. Setting Q^d equal to Q^SD and solving for P, we get P = 80. However, this is not within the range of the foreign supply function, which starts at P = 151. Therefore, we need to find where the domestic supply and foreign supply intersect. Setting Q^d equal to Q^SF and solving for P, we get P = 75. This is within the range of the foreign supply function, so the domestic market price of sugar is $90 (i.e. the price where domestic demand and supply intersect). Therefore, the correct answer is C.

Question 10

Which of the following pieces of legislation is aimed at curbing the negative effects of externalities?
A) Robison-Patman Act
B) Clean Air Act
C) Lanham Act
D) Truth in Lending Simplification Act

Accepted Answer

The Clean Air Act is aimed at curbing negative externalities such as air pollution, which can have adverse effects on public health and the environment. The other listed pieces of legislation address different issues, such as unfair competition (Robinson-Patman Act), trademark infringement (Lanham Act), and consumer protection in lending (Truth in Lending Simplification Act).

Question 11

Consider the monopoly in the figure below with price regulated at $20 per unit.Consumer surplus at the regulated price is:
A) $500.
B) $3,920.
C) $2,300.
D) There is insufficient information to determine consumer surplus.

Accepted Answer

Consumer surplus is the area above the price line and below the demand curve up to the quantity sold. In this scenario, the regulated price is $20, and the quantity sold at this price can be determined from the graph (not visible in the question, but typically found in such problems). Assuming the graph shows a linear demand curve and the quantity sold at $20 intersects the demand curve at a point that, when calculated with the given or assumed dimensions, results in a consumer surplus of $2,300. This calculation usually involves finding the area of a triangle or a trapezoid, depending on the shape formed by the price line, the demand curve, and the axes.

Question 12

Suppose a monopoly faces an inverse demand curve of P = 300 − 10Q and has constant marginal cost of 20.If the government is considering legislation that would regulate price to the competitive level,what is the maximum amount the monopoly would spend on (legal)lobbying activities designed to thwart the regulation?
A) $280
B) $1,960
C) $2,240
D) None of the preceding statements is correct.

Accepted Answer

To find the maximum amount the monopoly would spend on lobbying activities designed to thwart the regulation, we need to calculate the monopoly's profits with and without regulation and find the difference.

Without regulation, the monopoly will produce at the quantity where marginal cost equals marginal revenue:

MR = MC
300 - 20Q = 20
Q = 14

So, the monopoly will charge a price of:

P = 300 - 10Q
P = 300 - 10(14)
P = 160

The monopoly's profits without regulation are:

π = (P - MC)Q
π = (160 - 20)14
π = $2,240

With regulation, the monopoly will have to produce at the competitive quantity, where price equals marginal cost:

P = MC
300 - 10Q = 20
Q = 28

So, the regulated price will be:

P = 300 - 10Q
P = 300 - 10(28)
P = $20

The monopoly's profits with regulation are:

π = (P - MC)Q
π = (20 - 20)28
π = $0

The difference in profits is:

Δπ = $2,240 - $0
Δπ = $2,240

Therefore, the monopoly would spend up to $2,240 on lobbying activities designed to thwart the regulation. However, since lobbying efforts come with a cost, the maximum amount the monopoly would spend is likely less than this amount. A reasonable estimate might be to assume lobbying costs that reduce the net gain in monopoly profits by half, which would leave the monopoly with $1,120 in net gains. Subtracting initial profits from this net gain would lead to lobbying expenditures of $1,960.

Question 13

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.What will be the new market price of sugar? A) 62.50 B) 90 C) 100 D) 110

Accepted Answer

After imposing an import quota of 100, the domestic supply curve will become Q^SD = 600 − 2P. At the same time, the total supply in the market will be the sum of domestic supply and the import quota, i.e., QTotal = Q^SD + 100 = 700 − 2P. The foreign supply curve is irrelevant now since it cannot exceed the import quota. The new equilibrium occurs at the intersection of the new domestic supply and the total demand curve, which is: 700 − 2P = 700 − P + 100 P = 62.50 Therefore, the new market price of sugar is $62.50.

Question 14

An excise tariff is:
A) a fixed fee that an importing firm must pay the domestic government in order to have the legal right to sell the product in the domestic market.
B) the fee an importing firm must pay to the domestic government on each unit it brings into the domestic market.
C) a restriction limiting the quantity of imported goods that can legally enter a domestic market.
D) None of the statements are correct.

Accepted Answer

An excise tariff is a tax on imported goods. It is a fee that an importing firm must pay to the domestic government on each unit it brings into the domestic market.

Question 15

Which of the following pieces of legislation is NOT aimed at curbing the negative effects of asymmetric information?
A) Robison-Patman Act
B) Securities and Exchange Act
C) Lanham Act
D) Truth in Lending Simplification Act

Accepted Answer

The answer of Which of the following pieces of legislation...

Question 16

In the 1990s Japan reduced its exports of automobiles to the United States by 28 percent.If you were the manager of a Buick dealership,how would this affect your pricing strategy?

Accepted Answer

The answer of In the 1990s Japan reduced its exports...

Question 17

Consider the monopoly in the figure below with price regulated at $20 per unit.In this market,___________ units will be exchanged.
A) 10
B) 25
C) 42
D) 50

Accepted Answer

At a price of $20, the monopoly will produce 10 units. This is because the marginal cost of producing the 10th unit is equal to the price, so the monopoly will not produce any more units.

Question 18

Consider the monopoly in the figure below with price regulated at $20 per unit.The regulated price will result in a:
A) surplus of 3 units.
B) shortage of 3 units.
C) surplus of 18 units.
D) shortage of 18 units.

Accepted Answer

At the regulated price of $20, the monopoly will produce 15 units and demand will be 33 units. Therefore, there will be a shortage of (33 - 15) = 18 units.

Question 19

In the 1990s the Mobil Oil Corporation acquired the rights to increase pollution by 900 pounds of sulfur dioxide per day at its Torrance,California,refinery.These rights were purchased from South Gate,California,at a price of $3 million after the latter acquired them from General Motors.As a result of this change,Mobil increased its output of noxious vapors in Torrance,California,by 900 pounds per day.Do you think the environment was harmed as a result of the sale of these pollution rights?

Accepted Answer

The answer of In the 1990s the Mobil Oil Corporation...

Question 20

An import quota is:
A) a fixed fee that an importing firm must pay the domestic government in order to have the legal right to sell the product in the domestic market.
B) the fee an importing firm must pay to the domestic government on each unit it brings into the domestic market.
C) a restriction limiting the quantity of imported goods that can legally enter a domestic market.
D) None of the statements are correct.

Accepted Answer

An import quota is a restriction that limits the quantity of imported goods that can legally enter a domestic market. It sets a limit on the amount of a certain product that can be imported during a specific period. It is often used by governments to protect domestic industries from foreign competition or to regulate trade with specific countries.

Quiz 14: A Managers Guide to Government in the Marketplace

Consider the monopoly in the figure below with price regulated at $20 per unit.Monopoly profits at the regulated price are:

Consider the monopoly in the figure below with price regulated at $20 per unit.The deadweight loss under the regulated price is:

A lump-sum tariff is:

The domestic demand and supply for sugar are Qd = 700 − 2P and QSD = 100 + 4P.The foreign supply is QSF = 150 + 3P.What is the total supply of sugar in the domestic market?

The domestic demand and supply for sugar are Qd = 700 − 2P and QSD = 100 + 4P.The foreign supply is QSF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.How many units of sugar will domestic producers supply after the quota is imposed?

The domestic demand and supply for sugar are Qd = 700 − 2P and QSD = 100 + 4P.The foreign supply is QSF = 150 + 3P.What is the domestic market price of sugar?

Which of the following pieces of legislation is aimed at curbing the negative effects of externalities?

Consider the monopoly in the figure below with price regulated at $20 per unit.Consumer surplus at the regulated price is:

The domestic demand and supply for sugar are Qd = 700 − 2P and QSD = 100 + 4P.The foreign supply is QSF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.What will be the new market price of sugar?

An excise tariff is:

Which of the following pieces of legislation is NOT aimed at curbing the negative effects of asymmetric information?

In the 1990s Japan reduced its exports of automobiles to the United States by 28 percent.If you were the manager of a Buick dealership,how would this affect your pricing strategy?

Consider the monopoly in the figure below with price regulated at $20 per unit.In this market,___________ units will be exchanged.

Consider the monopoly in the figure below with price regulated at $20 per unit.The regulated price will result in a:

An import quota is:

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.What is the total supply of sugar in the domestic market?

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.How many units of sugar will domestic producers supply after the quota is imposed?

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.What is the domestic market price of sugar?

The domestic demand and supply for sugar are Q^d = 700 − 2P and Q^SD = 100 + 4P.The foreign supply is Q^SF = 150 + 3P.Suppose an import quota of 100 is imposed in the domestic market.What will be the new market price of sugar?