m3s08_a_key

m3s08_a_key - Key 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 If...

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Key 1. (A) If dormitories are assigned randomly, then it is almost certain that the students will be able to improve their allocations through mutually beneficial trades, implying inefficiency. The inefficiency comes because the goods available (dormitory rooms) are assigned to the wrong persons, which is the definition of distributive inefficiency. 2. (A) Microsoft was trying to leverage its market power in the market for operating systems into a dominant position in the market for browsers. The Justice Dept. argued that tying the products together had anticompetitive effects in the browser market. 3. (D) The supply curve states how much the suppliers prefer to supply at each price, assuming that they cannot control the price. 4. (B) Maximizing total surplus is our definition of efficiency. 5. (AB) The marginal product of labor is the extra output created by adding one more unit of labor; if that is higher than the marginal product of land, it means that adding one more unit of labor creates more extra output than one more unit of land. 6. (E) 7. (A) This is the definition of concentration. 8. (B) Antitrust law seeks to limit the accumulation of market power through unreasonable and anticompetitive practices. 9. (B) This is the definition of the Law of Diminishing Returns. 10. (AD) This comes from using the demand curve to represent marginal social benefit. 11. (C) This comes from using the supply curve to represent marginal social cost. 12. (D) Surplus is maximized where MSC=MSB, that is, where supply meets demand. 13. (AB) When the firms form a cartel and try to maximize profits, they are agreeing to act as if they were a monopoly. The supply curve is the marginal cost curve of the combined firms, and to maximize profits they produce the quantity where MR=MC, at Q=30. Going up to the demand curve, that corresponds to setting a price of $45. 14. (D) Predatory pricing occurs when a firm sets price below its marginal cost, to drive rivals out of business. 15. (D) Redistributing wealth from the rich to the poor creates an incentive to remain poor and reduces the incentive to get rich, which altogether reduces the incentive to work hard. Answer (C) is wrong because a policy that increases total surplus could, in principle,
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m3s08_a_key - Key 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 If...

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