Author: Anonymous

RedGold Farms is a firm that produces and sells tomatoes. The market for tomatoes is perfectly competitive. The Marginal Private Benefit (MPB), Marginal Social Benefit (MSB), and Marginal Social Cost (MSC) are shown on the following graph. This graph shows RedGold Farms’ market for tomatoes, with price per unit on the vertical axis ranging from $4 to $8, and quantity of output on the horizontal axis. The downward-sloping Marginal Private Benefit (MPB) curve and the downward-sloping Marginal Social Benefit (MSB) curve are drawn, with MSB above MPB. An upward-sloping curve labeled MPC equals MSC represents marginal private and social costs. Horizontal dashed lines indicate price levels at $4, $5, $7, and $8, while vertical dashed lines mark quantities at Q0, Q1, and Q2. The graph illustrates potential market outcomes, showing where private and social benefits differ from social costs in a perfectly competitive market for tomatoes. Use the graph to answer questions a-d. Identify the kind of market failure represented by this graph. (3 points) Using numbers from the graph, identify the marginal external benefit. (3 points) Assume the tomato market is in short-run equilibrium and RedGold hires workers in a perfectly competitive labor market at a wage of $20 per hour. The marginal product of the last worker hired was 6 units of tomatoes per hour. Calculate the change in RedGold’s profit per hour from the last worker hired. Show your work. (3 points) Suppose that the government decides to provide a per-unit subsidy to consumers who buy tomatoes. How would the per-unit subsidy affect RedGold’s marginal revenue product curve? Explain. (3 points) Instead of hiring workers in a perfectly competitive labor market, assume RedGold hires workers in a monopsony labor market. Will the number of workers hired increase, decrease, or stay the same? Explain. (3 points)

Which of the following will occur when wage rates decrease in a given labor market?

When the demand for new homes decreases, the demand for construction workers who build homes decreases. This relationship illustrates the concept of

Which of the following is true of the marginal revenue curve for a monopolistically competitive firm?

At a given quantity of output of a firm, if the marginal product of capital equals the marginal product of labor and the wage rate equals the rental rate of capital, then

A firm with market power sells its product in two markets. The firm faces the same cost curves in both markets but faces a relatively elastic demand in one market for its product and a relatively inelastic demand in the other market for that same product. Which of the following will increase the firm’s profits?

In the short run in perfect competition, the industry’s demand curve and a firm’s demand curve have which of the following slopes?

Which of the following is always true for a firm with monopsony power?

The figure shows a graph with the horizontal axis labeled Quantity of Nursing Services and the vertical axis labeled Wage. There are 4 points on the horizontal axis labeled, from left to right, Q 1, Q 2, Q 3, and Q 4. There are 3 points on the vertical axis labeled, from bottom to top, W 1, W 2, and W 3. There are 3 solid straight lines on the graph. One solid straight line labeled M R P begins on the vertical axis above W 3 and moves down and to the right, ending above the horizontal axis beyond Q 4. The second solid straight line is labeled M F C and begins on the vertical axis below W 1 and moves up and to the right, crosses M R P, and ends above the horizontal axis between Q 3 and Q 4. Line M F C intersects line M R P at a point with coordinates Q 3 and W 3. The third solid straight line labeled S begins at the same point as M F C on the vertical axis and moves less steeply up and to the right, staying below M F C, crosses M R P, and ends above the horizontal axis beyond Q 4. Line S intersects line M R P at a point with coordinates Q 4 and W 2. There are 3 other unlabeled points on the graph. The first point lies on line M F C with coordinates Q 1 and W 1. The second point lies on line M F C with coordinates Q 2 and W 2. The third point lies on line S with coordinates Q 3 and W 1. Hope Hospital is a monopsonistic employer of nurses. The marginal revenue product of nursing services, the marginal factor (resource) cost of nursing services, and the market supply curve of nursing services are depicted in the figure above by MRP, MFC, and S, respectively. What wage quantity combination does Hope Hospital choose in order to maximize its profits?

Which of the following is true for a monopolist that engages in perfect price discrimination?