1. In a perfectly competitive industry in the short run, if the government places a per - unit tax on output, which of the following will occur?
a) Marginal costs will not change, but the industry supply curve will increas
b) Marginal costs will increase, and industry supply will increase
c) Marginal costs will increase, and industry supply will decrease
d) Marginal costs will decrease, and industry supply will decrease.
2. A perfectly competitive increasing cost industry is in long-run equilibrium. Due to a change in tastes and preferences, there is an increase in demand. Which of the following best describes the effect on the industry?
The price will
a) Increase, firms will produce more, profits will be below zero, and firms will exit until profit returns to zero.
b) Increase, firms will produce more, profits will increase, and more firms will enter until profit returns to zero.
c) Increase, firms will produce less, profits will be below zero, and firms will enter until profit returns to zero.
d) Decrease, firms will produce less, profits will be below zero, and firms will exit until profit returns to zero.
3. Recently, a top constitutional law expert who had been licensed to practice law in Massachusetts and was under consideration for nomination to the California Supreme Court failed the California bar examination. In doing so, she joined a long list of accomplished lawyers who have failed to pass the notoriously difficult examination, including a former governor who required four attempts to pass and a Los Angeles mayor who gave up after four tires. In the legal industry, what is a key economic function of the California bar examination?
a) It acts as a barrier to entry into the market for lawyers' services
b) It sets the minimum efficient scale for lawyers' services.
c) It ensures that California lawyers meet the highest legal standards
d) There is no economic function of the California bar examination.
4. Prices of tickets for seats on commercial passenger planes are typically in the hundreds of dollars, whereas trips can be made by automobile at much lower cost. Accident rates per person per trip in the airline industry are considerable lower than auto accident rates per person per trip. Based on these facts, discuss how regulatory costs and benefits may help to explain why government regulations require children to be placed in safely seats in automobiles but not on commercial passenger planes.
a) The expected benefit of using child safety seats in automobiles is much higher than the expected benefit of using them on commercial passenger planes.
b) The marginal benefit of using child safety seats in automobiles equals the marginal cost of installing them, but the marginal benefit of using them on commercial passenger planes exceeds the marginal cost of installing them on planes.
c) The average benefit of using child safety seats in automobiles equals the average cost of installing them, but the average benefit of using them on commercial passenger planes exceeds the average cost of installing them on planes.
d) The expected benefit of using child safety seats in automobiles is much lower than the expected benefit of using them on commercial passenger planes.
5. Explain how the following events would affect the demand for labor.
a) A new education program administered by the company increases labor's marginal product. The demand for labor would remain unchanged?/decrease?/increase?(pick one)
b) The firm completes a new plant with a larger workspace and new machinery. The demand for labor would remain unchanged?/decrease?/increase?(pick one)