Econ 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:True, false, or uncertain. Only your explanations will be graded. Graphs are also encouraged, butyour explanation is more important. Therefore please explain quickly and accurately.1. A typical monopoly creates a shortage in the market because it produces at the profit-maximizing output (MC=MR) rather than at the socially optimal output (P=MC).2. The government should place a per unit tax on a typical monopoly in order to reduce the deadweight loss.Graph and explain.3. Draw a typical monopoly graph. Explain why a monopoly creates a deadweight loss in the market. (Please do not write an essay.)4. A perfectly competitive wheat firm is making positive profits in the short-run. Explain (graphically and in words) why the firm will not make positive profits in the long-run. (Do not write an essay.)Page 1 of 6Econ 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:What is wrong? List the mistakes.5. Monopoly6. MonopolyPage 2 of 6PQMCACMR=d=P*PQMCACMRDEcon 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:7. Perfect Competitive Firm in Long-runTrue, False, or Uncertain. Explain your answers and draw graphs if they help your explanation. You will be graded on your explanation more than your answer.8. Government taxes in a market with negative externalities always reduce the deadweight loss to society.9. Government subsidies in a market with positive externalities always reduce the deadweight loss to society.Page 3 of 6PQMCACd=MR=P*P*Q*Econ 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:10. The marginal cost of producing a public good is zero.11. Suppose an upward-sloping market supply curve and downward-sloping market demand curve. A per unit tax of $2 will increase the market equilibrium price by $2.12. Consumers and producers always share the tax burden for a per unit tax.Externalities.13. The market for widgets causes a negative externality (i.e. pollution cost) to society. Assume acompetitive market. Graphically show the following market conditions:Downward sloping market demandUpward sloping market supplyConstant marginal external costPage 4 of 6Econ 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:14. Label the market equilibrium price and quantity with subscript “c”.15. Label the socially optimal price and quantity with superscript “*”.16. Shade in the deadweight loss.17. The government implements a per unit tax on widget firms. Label the new market equilibrium Pc2, Qc2.18. William argues that if the government implements a per-unit tax to force the market to produce and consume at the socially optimal level (P*, Q*), then there will be no pollution costs arising from the widget market. Is he correct to assert that socially optimal implies zero pollution costs?Public Goods19. Public goods are non-rival and non-exclusionary. Why does the market tend to under-providepublic goods? Microeconomics Review20. Apples and oranges are substitutes. The price of apple increases. What happens to the wages of orange workers? Assume competitive markets. Please explain your answer with labor and output graphs.Page 5 of 6Econ 98-Chiu Microeconomics Summary Spring 2005Name & SID: Date:21. Circle the Nash Equilibrium. How do you know this is the Nash Equilibrium?BrendanWillyCheat Do not cheatCheatBrendan: $10b ProfitsWilly: $10b ProfitsBrendan: $40b ProfitsWilly: $3b ProfitsDo not cheatBrendan: $3b ProfitsWilly: $40b ProfitsBrendan: $5b ProfitsWilly: $5b Profits22. Draw a monopolistically competitive firm graph with a positive externality. Label the market equilibrium: Pc, Qc. Label the social-optimum: P*, Q*. Shade in the deadweight loss.23. Draw a monopoly graph with a negative externality. Label the market equilibrium: Pm, Qm. Label the social-optimum: P*, Q*. Shade in the deadweight loss.Page 6 of
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