1. Shortcomings of the kinked-demand model include:
a lack of explanation for how the initial price is set
2. Using the payoff matrix, and assuming no collusion between X and Y, what is the likely pricing outcome?
Both firms will set price at 35$
3. In th
1. Economics measure _ , or _, of any resource used in productions as the value the resource would
have in its best alternative use.
Opportunity costs; economic costs
2. When a firm makes cash expenditures to those that supply resources, economists call t
Review Questions 2
1. Match each term with the correct definition. LO2
Private property, freedom of enterprise, mutually agreeable, freedom of choice, selfinterest, competition, market
a. An institution that brings buyers and sellers together. Market
1. An economic system:
A. requires a grouping of private markets linked to one another.
B. is a particular set of institutional arrangements and a coordinating mechanism
used to respond to the economizing problem.
C. requires some sort
1. What is the basic characteristics of a purely competitive industry in terms of the number of firms?
There are a very large number of independently acting firms.
2. In a purely competitive industry, firms produce _ products.
3. In a purely
1. If a monopoly can experience economies of scale:
the monopolist can reduce the price below a pure competitor and improve resource allocation.
2. In the diagram below, the demand, marginal revenue, average total cost, and marginal cost curves are given.
1. In 2009 General Motors (GM) announced that it would reduce employment by 21,000 workers. What does this
decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)?
GM didnt reduce employment by more than 21,
1. A nominal wage is _.
The amount of money received by a worker per hour, day, or year, WITHOUT adjusting for its
2. A Real wage rate differs from a nominal wage rate because _.
It adjusts the nominal wage rate to account for changes in
1. The real interest rate is _.
The rate of interest expressed in inflation adjusted dollars
2. Which of the following would, all other things equal, result in the higher interest rate?
A loan with a longer maturity.
3. The loanable funds theor