Download Final Exam Questions

Final Exam Questions
Ec 263
Be sure and study the homework on monopoly
1) Discuss the implications of perfect competition. Why do the results of perfect competition break down under
the following situations?
a) economies of scale
b) public goods
c) asymmetric information
d) externalities.
2) Explain price rigidity in the kinked-demand curve model.
3) How does the kinked demand curve model account for interdependence among firms?
4) Explain the concept of rent-seeking behavior among firms incurring long-run economic profits. Use graphs.
Cite an example.
5) Identify the different theories of regulation. Graphically discuss the various ways that government might go
about regulating a monopolist characterized by economies of scale.
6) What was the historical reason for the emergence of antitrust law? What are some of the interpretations of
antitrust law? How does perfect competition supports the concept of antitrust?
7) What is the problem of the commons? Why does a laissez faire economy result in maximum destruction of the
resource? How might we resolve the problem?
8) Explain why perfect competition maximizes social welfare, and monopoly does not. Use graphs.
9) Explain the sense in which the invisible-hand doctrine is exemplified in the perfectly competitive model. Why do
the conclusions of the invisible-hand doctrine breakdown in the case of monopoly? What does this imply for the
government's relationship with the monopolist? What is one possible justification for monopoly?
10) Explain the rationale for government intervention in situations involving externalities. Use graphs.
11) Explain the logic behind the tangency between the firm’s demand curve and ATC under monopolistic
competition? Use graphs. On what basis do firms compete under monopolistic competition? Explain.
12) The essence of oligopoly is the interdependency amongst the different firms. Explain how this interdependency is
expressed in the game theory (prisoner’s dilemma). How does this differ from the interdependency expressed in
perfect competition?
13) Graphically show the rationale for drug companies to charge different prices for the same drug in the US and
Canada?
14) What are externalities? Explain why the existence of externalities prevents the market from maximizing social
welfare (or put differently, why does the existence of externalities result in the misallocation of resources)? What
are some ways that society should handle externalities?
15) What the implications of a perfectly competitive industry in which one firm takes advantage of economies of scale?
Under these conditions is perfect competition stable? Explain.
16) Explain the reason for economies of scale. Use graphs. What implications do economies of scale have for a
perfectly competitive industry in the long run? Explain.
17) Explain the reason for diseconomies of scale. Use graphs. How do diseconomies of scale differ from diminishing
returns?
18) For a given firm MRPL = $50, and MRPK= $100, while PL=$10 and PK=20.
a) Is the firm maximizing profits? Why or why not?
b) Show graphically.
c) Can you identify a specific action that would increase this firm’s profit?
19) Over the past two decades, wage inequality has increased substantially. High income workers say their incomes
rise, low wage earners saw their incomes stagnate or fall. Using marginal productivity theory (Marginal revenue
product) explain the change in the distribution of income.
20) Using general equilibrium analysis, show the effect of the following: Begin assuming in long-run equilibrium.
Further assume perfect competition.
a) Assume that transactions and transportation costs fall to zero. Further assume the elimination of trade
barriers. Identify the effect on manufacturing in the US and China.
b) Assume the government subsidizes to the manufacturers of hybrid cars. Show the effect on both hybrids
and SUVs.