曼昆经济学原理课后答案 Chapter 16-21

Chapter 16Problems and Applications1. a. Tap water is a perfectly competitive market because there are manytaps and the product does not differ across sellers.b. Bottled water is a monopolistically competitive market. There aremany sellers of bottled water, but each firm tries to differentiate itsown brand from the rest.c. The cola market is an oligopoly. There are only a few firms that controla large portion of the market.d. The beer market is an oligopoly. There are only a few firms thatcontrol a large portion of the market.2. a. OPEC members were trying to reach an agreement to cut production sothey could raise the price.b. They were unable to agree on cutting production because each countryhas an incentive to cheat on any agreement. The turmoil is a decline inthe price of oil because of increased production.c. OPEC would like Norway and Britain to join their cartel so that theycould act as a monopoly.3. a. If there were many suppliers of diamonds, price would equal marginalcost ($1,000), so the quantity would be 12,000.b. With only one supplier of diamonds, quantity would be set wheremarginal cost equals marginal revenue. The following table derivesmarginal revenue:With marginal cost of $1,000 per diamond, or $1 million per thousanddiamonds, the monopoly will maximize profits at a price of $7,000 anda quantity of 6,000. Additional production beyond this point wouldlead to a situation where marginal revenue is lower than marginal cost.c. If Russia and South Africa formed a cartel, they would set price andquantity like a monopolist, so the price would be $7,000 and thequantity would be 6,000. If they split the market evenly, they wouldshare total revenue of $42 million and costs of $6 million, for a totalprofit of $36 million. So each would produce 3,000 diamonds and get aprofit of $18 million. If Russia produced 3,000 diamonds and SouthAfrica produced 4,000, the price would decline to $6,000. SouthAfrica’s revenue would rise to $24 million, costs would be $4 million,so profits would be $20 million, which is an increase of $2 million.d. Cartel agreements are often not successful because one party has astrong incentive to cheat to make more profit. In this case, each couldincrease profit by $2 million by producing an extra 1,000 diamonds.However, if both countries did this, profits would decline for both ofthem.4. a. Buyers who are oligopolists try to decrease the prices of goods theybuy.b. The owners of baseball teams would like to keep players’ salaries low.This goal is difficult to achieve because each team has an incentive tocheat on any agreement, because they will be able to attract betterplayers by offering higher salaries.c. The salary cap would have formalized the collusion on salaries andhelped to prevent any team from cheating.5. a. If Mexico imposes low tariffs, then the United States is better off withhigh tariffs, because it gets $30 billion with high tariffs and only $25billion with low tariffs. If Mexico imposes high tariffs, then the UnitedStates is better off with high tariffs, because it gets $20 billion withhigh tariffs and only $10 billion with low tariffs. So the United Stateshas a dominant strategy of high tariffs.If the United States imposes low tariffs, then Mexico is better off withhigh tariffs, because it gets $30 billion with high tariffs and only $25billion with low tariffs. If the United States imposes high tariffs, thenMexico is better off with high tariffs, because it gets $20 billion withhigh tariffs and only $10 billion with low tariffs. So Mexico has adominant strategy of high tariffs.b. A Nash equilibrium is a situation in which economic actors interactingwith one another each choose their best strategy given the strategiesothers have chosen. The Nash equilibrium in this case is for eachcountry to have high tariffs.c. The NAFTA agreement represents cooperation between the twocountries. Each country reduces tariffs and both are better off as aresult.d. The payoffs in the upper left and lower right parts of the box do reflecta nati on’s welfare. Trade is beneficial and tariffs are a barrier to trade.However, the payoffs in the upper right and lower left parts of the boxare not valid. A tariff hurts domestic consumers and helps domesticproducers, but total surplus declines, as we saw in Chapter 9. So itwould be more accurate for these two areas of the box to show thatboth countries’ welfare will decline if they imposed high tariffs,whether or not the other country had high or low tariffs.6. a. The payoffs are:b. The likely outcome is that both of you will shirk. If your classmateworks, you’re better off shirking, because you would rather have 30units of happiness rather than 15. If your classmate shirks, you arebetter off shirking because you would rather have 10 units of happinessrather than 5. So your dominant strategy is to shirk. Your classmatefaces the same payoffs, so he or she will also shirk.c. If you are likely to work with the same person again, you have agreater incentive to work, so that your classmate will work, and you will both be better off. In repeated games, cooperation is more likely.d. The payoff matrix would become:Work is a dominant strategy for this new classmate. Therefore, the Nash equilibrium will be for you to shirk and your classmate to work.You would get a B and thus would prefer this classmate to the first.However, he would prefer someone with a dominant strategy of working as well so that he could get an A.7. a. The decision box for this game is:b. If Braniff sets a low price, American will set a low price. If Braniff setsa high price, American will set a low price. So American has adominant strategy to set a low price.If American sets a low price, Braniff will set a low price. If Americansets a high price, Braniff will set a low price. So Braniff has adominant strategy to set a low price.Because both have a dominant strategy to set a low price, the Nashequilibrium is for both to set a low price.c. A better outcome would be for both airlines to set a high price; theywould both get higher profits. That outcome could only be achieved bycooperation (collusion). If that happened, consumers would losebecause prices would be higher and quantity would be lower.8. a. If Jones has 10 cows and Smith has 10 for a total of 20 cows, each cowproduces $4,000 of milk. Because a cow costs $1,000, profits would be$3,000 per cow, or $30,000 for each farmer.If one farmer had 10 cows and the other farmer had 20 cows for a totalof 30 cows, each cow produces $3,000 of milk. Profits per cow wouldbe $2,000, so the farmer with 10 cows makes $20,000; the farmer with20 cows makes $40,000.If both farmers have 20 cows for a total of 40 cows, each cow produces$2,000 of milk. Profit per cow is $1,000, so each farmer’s profit is$20,000. The results are shown in the table:b. If Jones had 10 cows, Smith would want 20 cows. If Jones had 20cows, Smith would be indifferent (get the same profit) if he had 10 or20 cows. So Smith has a dominant strategy of having 20 cows.If Smith had 10 cows, Jones would want 20 cows. If Smith had 20cows, Jones would be indifferent (get the same profit) if he had 10 or20 cows. So Jones has a dominant strategy of having 20 cows.The Nash equilibrium is for each farmer to have 20 cows, because thatis the dominant strategy for each. They each make profits of $20,000.But they would both be better off if they cooperated and each had only10 cows; then profit would be $30,000 each.c. The problem illustrates how a common field may be overused,reducing the profits of producers. Because people tend to overusecommon fields, it is more efficient for people to own their own portionof the field. Thus, over time, common fields have been divided up andowned privately.9. a. If Kona enters, Big Brew would want to maintain a high price. If Konadoes not enter, Big Brew would want to maintain a high price. Thus,Big Brew has a dominant strategy of maintaining a high price.If Big Brew maintains a high price, Kona would enter. If Big Brewmaintains a low price, Kona would not enter. Kona does not have adominant strategy.b. Because Big Brew has a dominant strategy of maintaining a high price,Kona should enter.c. There is only one Nash equilibrium. Big Brew will maintain a highprice and Kona will enter.d. Little Kona should not believe this threat from Big Brew because it isnot in Big Brew’s interest to carry out the threat. If Little Kona enters,Big Brew can set a high price, in which case it makes $3 million, orBig Brew can set a low price, in which case it makes $1 million. Thusthe threat is an empty one, which Little Kona should ignore; LittleKona should enter the market.e. If the two firms could successfully collude, they would agree that BigBrew would maintain a high price and Kona would remain out of themarket. They could then split a profit of $7 million.10. Neither player has a dominant strategy in this game. Jeff should hit left ifSteve guesses right and Jeff should hit right if Steve guesses left. Steve should guess left if Jeff hits left and Steve should guess right if Jeff hits right. Thus, if Jeff stuck with a particular strategy (left or right), Steve would be able to guess it easily after a few points. A better strategy for Jeff is to randomly choose whether to hit the ball left or right, sometimes hitting left and other times hitting right.11. a. Using Table 1 in the chapter, if 80 gallons are produced, the pricewould be $40 and profit would be $3,200. Divided three ways, Johnwould get $3,200/3 = $1,066.67. Each seller would sell 80/3 = 26.67gallons.b. If Jack and Jill stick to the agreement, John will benefit fromincreasing output by 10 units. The price would fall to $30. Jack’s totalprofit would increase to (36.67)($30) = $1,100.10.c. The Nash equilibrium will be (n+1)/n = 3/4 of the competitive output.Thus, output will be 90 gallons, which is greater than the output whenthere were only two sellers. The price will now be $30. Chapter 17Problems and Applications1. a. The market for #2 pencils is perfectly competitive because pencils byany manufacturer are identical and there are a large number ofmanufacturers.b. The market for copper is perfectly competitive, because all copper isidentical and there are a large number of producers.c. The market for local telephone service is monopolistic because it is anatural monopoly—it is cheaper for one firm to supply all the output.d. The market for peanut butter is monopolistically competitive becausedifferent brand names exist with different quality characteristics.e. The market for lipstick is monopolistically competitive becauselipstick from different firms differs slightly, but there are a largenumber of firms that can enter or exit without restriction.2. a. A firm in monopolistic competition sells a differentiated product from itscompetitors.b. A firm in monopolistic competition has marginal revenue less than price.c. Neither a firm in monopolistic competition nor in perfect competitionearns economic profit in the long run.d. A firm in perfect competition produces at minimum average total cost inthe long run.e. Both a firm in monopolistic competition and a firm in perfectcompetition equate marginal revenue and marginal cost.f. A firm in monopolistic competition charges a price above marginal cost.3. a. Both a firm in monopolistic competition and a monopoly firm face adownward-sloping demand curve.b. Both a firm in monopolistic competition and a monopoly firm havemarginal revenue that is less than price.c. A firm in monopolistic competition faces the entry of new firms sellingsimilar products.d. A monopoly firm earns economic profit in the long run.e. Both a firm in monopolistic competition and a monopoly firm equatemarginal revenue and marginal cost.f. Neither a firm in monopolistic competition nor a monopoly firmproduce the socially efficient quantity of output.4. a. The firm is not maximizing profit. For a firm in monopolisticcompetition, price is greater than marginal revenue. If price is belowmarginal cost, marginal revenue must be less than marginal cost. Thus,the firm should reduce its output to increase its profit.b. The firm may be maximizing profit if marginal revenue is equal tomarginal cost. However, the firm is not in long-run equilibriumbecause price is less than average total cost. In this case, firms will exitthe industry and the demand facing the remaining firms will rise untileconomic profit is zero.c. The firm is not maximizing profit. For a firm in monopolisticcompetition, price is greater than marginal revenue. If price is equal tomarginal cost, marginal revenue must be less than marginal cost. Thus,the firm should reduce its output to increase its profit.d. The firm could be maximizing profit if marginal revenue is equal tomarginal cost. The firm is in long-run equilibrium because price isequal to average total cost. Therefore, the firm is earning zeroeconomic profit.5. a. Figure 4 illustrates the market for Sparkle toothpaste in long-runequilibrium. The profit-maximizing level of output is Q M and the priceis P M.Figure 4b. Sparkle's profit is zero, because at quantity Q M, price equals averagetotal cost.c. The consumer surplus from the purchase of Sparkle toothpaste is areasA + B. The efficient level of output occurs where the demand curveintersects the marginal-cost curve, at Q C. The deadweight loss is area C,the area above marginal cost and below demand, from Q M to Q C.d. If the government forced Sparkle to produce the efficient level ofoutput, the firm would lose money because average total cost wouldexceed price, so the firm would shut down. If that happened, Sparkle'scustomers would earn no consumer surplus.6. By sending Christmas cards to their customers, monopolistically competitivefirms are advertising themselves. Because they are in a position in which price exceeds marginal cost, they would like to add customers, as shown in Figure 5.Because the price, P M, exceeds marginal cost, MC M, any additional customer who pays the existing price increases the firm's profits.Figure 57. a. A family-owned restaurant would be more likely to advertise than afamily-owned farm because the output of the farm is sold in a perfectlycompetitive market, in which there is no reason to advertise, while theoutput of the restaurant is sold in a monopolistically competitivemarket.b. A manufacturer of cars is more likely to advertise than a manufacturerof forklifts because there is little difference between different brands ofindustrial products like forklifts, while there are greater perceiveddifferences between consumer products like cars. The possible returnto advertising is greater in the case of cars than in the case of forklifts.c. A company that invented a very comfortable razor is likely to advertisemore than a company that invented a less comfortable razor that coststhe same amount to make because the company with the verycomfortable razor will get many repeat sales over time to cover thecost of the advertising, while the company with the less comfortablerazor will not.8. a. Perdue created a brand name for chicken by advertising. By doing so,he was able to differentiate his product from other chicken, gainingmarket power.b. Society gained to the extent that Perdue has a great incentive tomaintain the quality of his chicken. Society lost to the extent that themarket for chicken became less competitive, with the associateddeadweight loss.9. a. Figure 6 shows Tylenol's demand, marginal revenue, and marginal costcurves. Tylenol's price is P T, its marginal cost is MC T, and its markupover marginal cost is P T− MC T.Figure 6b. Figure 7 shows the demand, marginal revenue, and marginal costcurves for a maker of acetaminophen. The diagrams differ in that theacetaminophen maker faces a horizontal demand curve, while themaker of Tylenol faces a downward-sloping demand curve. Theacetaminophen maker has no markup of price over marginal cost,while the maker of Tylenol has a positive markup, because it has somemarket power.Figure 7c. The maker of Tylenol has a bigger incentive for careful quality control,because if quality were poor, the value of its brand name would deteriorate, sales would decline, and its advertising would be worthless.Chapter 21Problems and Applications1. a. Figure 10 shows the effect of the frost on Jennifer's budget constraint.Because the price of coffee rises, her budget constraint swivels fromBC1 to BC2.b. If the substitution effect outweighs the income effect for croissants,Jennifer buys more croissants and less coffee, as shown in Figure 10.She moves from point A to point B.Figure 10c. If the income effect outweighs the substitution effect for croissants,Jennifer buys fewer croissants and less coffee, moving from point A topoint B in Figure 11.Figure 112. a. Skis and ski bindings are complements. Coke and Pepsi are substitutes.b. Indifference curves between Coke and Pepsi are fairly straight, becausethere is little to distinguish them, so they are nearly perfect substitutes.Indifference curves between skis and ski bindings are very bowed,because they are complements.c. A consumer will respond more to a change in the relative price of Cokeand Pepsi, possibly switching completely from one to the other if theprice changes.3. a. Cheese and crackers cannot both be inferior goods, because if Mario'sincome rises he must consume more of something.b. If the price of cheese falls, the substitution effect means Mario willconsume more cheese and fewer crackers. The income effect meansMario will consume more cheese (because cheese is a normal good)and fewer crackers (because crackers are an inferior good). So, botheffects lead Mario to consume more cheese and fewer crackers.Figure 124. a. Figure 12 shows Jim's budget constraint. The vertical intercept is 50quarts of milk, because if Jim spent all his money on milk he wouldbuy $100/$2 = 50 quarts of it. The horizontal intercept is 25 dozencookies, because if Jim spent all his money on cookies he would buy$100/$4 = 25 dozen cookies.b.If Jim's salary rises by 10 percent to $110 and the prices of milk andcookies rise by 10 percent to $2.20 and $4.40, Jim's budget constraintwould be unchanged. Note that $110/$2.20 = 50 and $110/$4.40 = 25,so the intercepts of the new budget constraint would be the same as theold budget constraint. Because the budget constraint is unchanged,Jim's optimal consumption is unchanged.Figure 13 Figure 145. a. Budget constraint BC1 in Figure 13 shows the budget constraint if youpay no taxes. Budget constraint BC2 shows the budget constraint with a15 percent tax.b.Figure 14 shows indifference curves for which a person will workmore as a result of the tax because the income effect (less leisure)outweighs the substitution effect (more leisure), so there is less leisureoverall. Figure 15 shows indifference curves for which a person willwork fewer hours as a result of the tax because the income effect (lessleisure) is smaller than the substitution effect (more leisure), so there ismore leisure overall. Figure 16 shows indifference curves for which aperson will work the same number of hours after the tax because theincome effect (less leisure) equals the substitution effect (more leisure),so there is the same amount of leisure overall.Figure 15 Figure 166. Figure 17 shows Sarah's budget constraints and indifference curves if sheearns $6 (BC1), $8 (BC2), and $10 (BC3) per hour. At a wage of $6 per hour, she works 100 –L6 hours; at a wage of $8 per hour, she works 100 –L8 hours;and at a wage of $10 per hour, she works 100 –L10 hours. Because the labor supply curve is upward sloping when the wage is between $6 and $8 per hour, L6 > L8; because the labor supply curve is backward sloping when the wage is between $8 and $10 per hour, L10 > L8.Figure 17 Figure 187. Figure 18 shows the indifference curve between leisure and consumption thatdetermines how much a person works. An increase in the wage leads to both an income effect and a substitution effect. The higher wage makes the budget constraint steeper, so the substitution effect increases consumption and reducesleisure. But the higher wage has an income effect that increases both consumption and leisure if both are normal goods. The only way that consumption could decrease when the wage increased would be if consumption is an inferior good and if the negative income effect outweighs the positive substitution effect. This could happen for a person who really placed an exceptionally high value on leisure.Figure 19 Figure 208. a. Figure 19 shows the situation in which your salary increases from$30,000 to $40,000. With numbers shown in thousands of dollars in thefigure, your initial budget constraint, BC1, has a horizontal intercept of30, because you could spend all your income when young. The verticalintercept is 31.5, because if you spent nothing when young and savedall your income, earning 5 percent interest, you would have $31,500 tospend when old. If your salary increases to $40,000, your budgetconstraint shifts out in a parallel fashion, with intercepts of 40 and 42,respectively. This is an income effect only, so if consumption whenyoung and old are both normal goods, you will spend more in bothperiods.b. If the interest rate on your bank account rises to 8 percent, your budgetconstraint rotates. If you spend all your income when young, you willspend just $30,000, as before. But if you save all your income, yourold-age consumption increases to $30,000 x 1.08 = $32,400, comparedto $31,500 before. As Figure 20 indicates, the steeper budget line leadsyou to substitute future consumption for current consumption. But theincome effect of the higher return on your saving leads you to want toincrease both future and current consumption if both are normal goods.The result is that your consumption when old certainly rises and yourconsumption when young could increase or decrease, depending onwhether the income or substitution effect dominates.9. The decline in the interest rate on savings has both income and substitutioneffects, because it causes the budget constraint to rotate. Because consumption when old effectively becomes more expensive relative to consumption when young, there is a substitution effect that increases consumption when young and decreases consumption when old. The lower interest rate also leads to a negative income effect, causing both consumption when young and consumption when old to decline if both are normal goods. Combining both effects, consumption when old definitely declines and consumption when young might rise or fall, depending on whether the income or substitution effect is stronger.10. a. Figure 21 shows the budget constraint. The initial budget line is shownas BL1. If all hours are spent raising children, 10 children can be raised.If all hours are spent working, $2,000,000 can be earned forconsumption. The individual maximizes utility by choosing K1children and a consumption level of C1.Figure 21b. If the wage rises, the budget line rotates to BL2in Figure 21. Thebudget line is now steeper indicating the higher opportunity cost ofraising a child. The substitution of this increase in the wage will meana rise in consumption and a decline in the number of children.Assuming that both children and consumption are normal goods, theincome effect of the increased wage will mean a rise in both childrenand consumption. The full effect on consumption is positive, but theend effect on children depends on the relative sizes of the income andsubstitution effects.c. If the number of children declines as incomes rise, the substitutioneffect must outweigh the income effect.11. If consumers do not buy less of a good when their incomes rise, the good inquestion must be a normal good. For a normal good, the income and substitution effects both imply that the consumer will buy less if the price rises.Figure 2212. a. Figure 22 shows the effects of the welfare program. Without theprogram, the budget constraint would begin on the horizontal axis atpoint L max when the family earns no labor income and would have aslope equal to the wage rate. The program provides income of a certainamount if the family earns no labor income, shown as the point A onthe figure. Then, if income is earned, the welfare payment is reduced,so the slope of the budget line is less than the slope of the budget linewithout welfare. At the point where the two budget lines meet, thewelfare program provides no further support.b. The figure shows how indifference curves could be shaped, indicatinga reduction in the number of hours worked by the family because ofthe welfare program. Because the welfare budget constraint is flatter,there is a substitution effect away from consumption and towardleisure. Because the welfare budget constraint is farther from the origin,there is an income effect that increases both consumption and leisure,if both are normal goods. The overall effect is that the change inconsumption is ambiguous and the family will want to have moreleisure; hence, it will reduce its labor supply.c. There is no doubt that the family's well-being is increased, because thewelfare program gives them consumption and leisure opportunities thatwere not available before and they end up on a higher indifferencecurve.13. a. A lower tax rate would give rise to income and substitution effects on aperson's choice of consumption and leisure. The income effect wouldincrease both consumption and leisure, if both goods were normalgoods, because the reduction in the tax rate leaves more after-taxincome. The lower tax rate would increase the slope of the budgetconstraint, so the substitution effect would increase consumption anddecrease leisure. The net result is an increase in consumption and anambiguous effect on leisure, and thus an ambiguous effect on laborsupply.b. An increase in the amount on which no tax is owed would be a pureincome effect. If both consumption and leisure are normal goods, bothwould increase, so labor supply would decrease.14. a. If a person's utility depends on the lowest level of consumption duringher two periods of life, then her indifference curves betweenconsumption when young and consumption when old will be rightangles, with the angle occurring where consumption in the two periodsare equal, as shown in Figure 23.b. The budget constraint, BC1, is shown in the figure. Note that theoptimum occurs where the budget constraint just hits one of theright-angled indifference curves.c. An increase in the interest rate shifts the budget constraint to BC2.Because (at the optimum) consumption when young must equalconsumption when old, the person increases consumption in bothperiods. Thus the person saves less even though the interest rateincreased. In this case, there is no substitution effect from the higherinterest rate, because of the shape of the indifference curves. The onlyeffect is an income effect, leading the person to increase consumptionin both periods.。