Economics Assignment 3

1. A profit-maximizing firm picks the quantity of output at which ———- equals —————.2. The entry of a second firm shifts the firm-specific demand curve of the first firm to the———(left/right)3. A perfectly competitive firm has a ——demand curve, whereas, a monopolistic competitivefirm has a —–demand curve.4. In the long-run equilibrium ina perfectly competitive market, price is equal to both———and ————–.5. Although there relatively small —-in the production of berakfast cereal, the market is anoligopoly because of the substantial investment in —–required to enter the market.6. In the figure below, rectangle 3 is not a Nash equilibrium because if ——picks a(n) — price,the best response of —–is to pick the —-price.7. Buzz and Moe are duopolists in the lawn-care market. The following game tree shows thepossible pricing outcomes and their payoffs. The outcome of the pricing game is that Buzzwill pick the ———price and Moe will pick the ———- price.8. Arrows up or down: In the kinked demand curve model, the demand for a firms product isrelatively elastic when the price —- and rerelatively inelastic when the price ——–.9. Consider a market with tow firms managed by Harry and Vera. Under a cartel (goth firmspick the high price), eanch firm earns a profit of $80.. Under a duopoly (goth firms pick the lowprice), each firm earns a profit of $60.. If the two firms pick different prices, the high-price firmearns a profit of $20. And the low-price firm earns a profit of $90.a. Fill in the payoff matrix.b. The outcome of the pricing game is that Harry picks the —— price and Vera picks the—–price.c.The outcome identified in part ( b ) is a Nash equilibrium because neither firm has anincentive to ————.10. The entry of a second firm shifts the demand curve of the original firm to the ———-, sothat at each price the original firm will sell a(n) quantity.11. There are three types of antitrust polies, (1)————–, (2) ————-, and (3) ———–.12. The deregulation of the airline industry led to ———- prices on average, but ——-prices in cities.13. The optimal level of pollution abatement is the level at which the ——— of abatementequals the —— of abatement.14. Arrows up or doen: A carbon tax will shift the supply curve for home heating oil ———–,causing the equilibrium price to ———- and the equilibrium quantity to —–.15. A command-and-control policy is likely to be inefficient because it requires firms to use———.16. A decrease in the supply of marketavle pollution permits will shift the supply curve forpermits to the —————- and ——the equilibrium price of permits.17. A gasoline tax will be shifted forward to ——— and backward to ——-, such as thesuppliers of ————-.18. Arrows up or down: An increase in the wage ———— real income, and if leisure is anormal good this tends to ———– leisure time and ——– labor time.19. Income and Substitution Effects. Sabrina works for a workers cooperative that initially paysher a lumpsum of $200. Per week (as long as she works at least 15 hours per week) and a wageof $20 per hour of work. She initially works 40 hours per week. Suppose the cooperative changesits pay plan by increasing the lump-sum payment to $280 and decreasing the hourls wage to $18.a. If Sabrina continues to work 40 hours per week, how does the change in the pay plan affecther total income?b. Use the concepts of the income and substitution effects to predict whether Sabrina will workmore hours, fewer hours, or the same number of hours. (Is there an income effect to consider)20. Arrows up or down: An increase in the demand for nursing services will ———-theequilibrium wage and ———– the equilibrium quantity of nursing services.21. The wage for a particular occupation will be relatively low if labor ——– (demand/supply)is small relative to labor (demand/supply).22. Arrows up or down: An important factor in growing inequality over the last 30 years istechnological change that has ———– the demand for college graduates and ———- thedemand for less educated workers.