Microeconomics problem set

PROBLEM SET .doc 

1.  What is diminishing
marginal productivity?  Why does it
exist?  Provide a real world example of
this and a live link to an internet source. 
(In other words, don’t use an example from the text, find an example of
your own.)

2.  Complete the
following table.  What output is the
profit maximizing level of output.  Using
proper economic terminology why is this the case? 

MR = Marginal Revenue

TVC = Total Variable Cost

AVC = Average Variable Cost

TFC = Total Fixed Cost

AFC = Average Fixed Cost

ATC = Average Total Cost

MC = Marginal Cost

3.  A local hardware
store is trying to decide whether to stay open. 
They have found that their industry is extremely competitive and profits
have shrunk considerably.  Knowing that
you have taken an economics course the owners have asked for your opinion.  Draw a completely labeled graph to help you
explain the shut down decision.  Assume
that the store is losing money; however, explain why they may want to stay open
for a little while longer.  (NOTE: Your
answer should be a written explanation of your graph.)

4.  Monopolies can
sometimes find themselves in difficult financial situations that lead to
losses.  Suppose Mr. Burns’ power company
has a monopoly for providing electricity in Springfield.  His costs of upkeep are so high that he is
persistently losing money.  Show this
outcome in a completely labeled graph. 
Clearly identify all parts of your graph including the best price and
output for the firm as well as the losses.

Now, answer the following:

1. What happens to
   the market when Mr. Burns raises the price he charges?
2. Will this stop
   his losses?  Why or why not?

5.  Movies are
distributed in a variety of forms, not just first run theatrical
presentations.  What other ways are
movies distributed? (HINT:  Distribution
has nothing to do with how old a movie patron is.)  What are the different price points?  Using this information, draw a fully labeled
graph of the market for movies in which the distributor of the film price
discriminates.  (NOTE:  This should not be perfect price
discrimination.) 

6.  What combination
of the two goods below allows you to maximize your utility with a budget
constraint of $14?  Show how you arrived
at your conclusion in the space provided below. 
Place your final answers on the lines at the bottom of this page.

PRICE = $0.50 per pint

PRICE = $2.00 per box

Pints of Butter Beer: _________________________

Boxes of Beans: ____________________________

7.  Assume the
following game is played one time only. 
Based on the information in the payoff matrix, PNC Bank and Citizens
Bank are considering an implicit collusive agreement on interest rates.  Payoffs to the two firms are represented in
terms of profits in thousands of dollars:

a.  Does PNC have a
dominant strategy?  What is it?  Does Citizens have a dominant strategy?  What is it?

b.  Solve for the Nash
equilibrium.

c.  Does the result of
your answer change if the game is played an infinite number of times?  Why or why not.  Properly use game theoretic terminology in
your answer. 

8.  Suppose that the national four-firm
concentration ratio in NAICS code 7131102 is 71.8. What is NAICS code 7131102,
and should authorities be concerned about the exercise of monopoly power based
on that 71.8 figure? Explain your answer. 
(You will need to find the NAICS title for industry code 7131102 to
answer this question.  Yes, you can find
it on the internet.)

9. Illustrate in a fully labeled graph the market for
information security specialists.  Show
the market equilibrium wage and quantity (you may just note this in your graph
with a “w” and “q” or you may make up a price and amount).  Due to a recent increase in the number of
cyber attacks from unfriendly nations firms and the U.S. government are trying
to hire more people to help protect their information.  Assuming it takes a few years to adequately
train someone to protect this information, what would you expect to see happen
to price and quantity in this market?  Show
this change in your graph.