Economics Homework Twelve - Model

1. A monopoly is one seller without any competitors. What is a "monopsony"?

2. Define, in your own words, what a "production possibilities curve" is.

3. Review: how is the elasticity of demand for labor related to the price elasticity of demand for the product of that labor?

Here's an example curve:

http://ingrimayne.com/econ/AllocatingRationing/MeasuringIncomeDist.html (Note the shape of the actual income distribution is different from the erroneous step function I described in Lecture 12. Sorry!)

4. Do you think that government policy should give high priority to the Lorenz curve? Explain the issue that a Lorenz curve addresses, and whether you think that should be a high priority of government economic policy.

5. Look again at Figure A. What is the opportunity cost of shifting production from B to C?

6. Review: explain again what AFC, AVC and ATC are, and how they relate to each other. When should a firm shut down in the short run?

7. What is needed to reach point D in Figure A? (In other words, what causes a production possibilities curve to shift outward?)

8. Look again at Figure C in the lecture (the first graph in this Lecture). At what point is total revenue maximized?

9. Explain why the production possibilities curve is convex (opening downward like the top of a circle) rather than concave (opening upward like the inside of a bowl) or a straight line.

10. Suppose you are a monopsony, and you must pay $9 per hour ($9/hr) to hire nine workers, but in order to hire one more worker you must pay $10/hr. The tenth worker will bring in $15 extra per hour to the firm’s revenue. Do you hire the tenth worker?

11. In the term "comparative advantage," to what does the adjective "comparative" refer? What is the term actually "comparing"? Explain.