37. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure function?
D.
ME
= 250
Q
+ 500
38. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure when it hires 150 coal miners?
A. $17,500
39. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure when it hires 100 coal miners?
D. $1,000,000
40. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the inverse supply
function for coal miners?
A.
W
= 0.02
Q
s
– 400
41. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure function?
A.
ME
= 50
Q
+ 10,000
42. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure when it hires 150 coal miners?
D. $5,000
43. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400, where
W
is the annual wage of a coal miner and
Q
is
the number of people who would accept employment as a coal miner. What is the coal mine’s
marginal expenditure when it hires 100 coal miners?
A. $35,000
44. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What is the inverse demand function for coal
miners?
A.
W
= 0.02
Q
– 500
45. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of miners is
Q
s
= 0.02
W
– 200 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a coal
miner and
Q
is the number of coal miners. What is the profit maximizing number of coal miners for
the coal mine to hire?
D. 233.33
46. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What is the wage required to hire the profit
maximizing number of workers?
A. $25,000
47. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What is the profit maximizing number of coal
miners for the coal mine to hire?
A. 300
48. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What wage must be paid at the profit maximizing
quantity of coal miners?
A. $23,333
49. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 400 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What is the deadweight loss due to the
monopsony in the coal miners market?
D. $21,667
50. The Solo Coal Mine is the only employer in the small town of Way out there. The market
supply of coal miners is
Q
s
= 0.02
W
– 200 and
Q
d
= 500 – 0.02
W,
where
W
is the annual wage of a
coal miner and
Q
is the number of coal miners. What is the deadweight loss in the market for coal
miners due to the monopsony?
A. $250,000
51. A market is a natural monopoly when:
D. the firm’s average cost function is everywhere upward sloping.
52. Which of the following is NOT a reason why a monopoly might be regulated?
D. To ensure that a good is produced at least cost
53. Suppose a firm has a variable cost function
VC
= 20
Q
with avoidable fixed cost of $50,000.
What is the firm’s average cost function?
D.
AC
= 20
54. Suppose a firm has a variable cost function
VC
= 20
Q
with avoidable fixed cost of $50,000.
What kind of firm is this?
D. This firm is a natural monopoly because as
Q
rises,
VC
rises.
55. Suppose a firm has a variable cost function
VC
= 20
Q
with avoidable fixed cost of $50,000.
For regulators, the
first-best
regulated price is ______; the
second-best
regulated price is ____.
A. $80; $480
56. A loss leader:
A. is a product that is sold at a price above its direct marginal cost to encourage sales of a
complementary product.
57. Suppose a multi-product monopolist sells two complementary goods,
A
and
B
. Annual
market demand for good
A
is
Q
dA
= 600 – 25
PA
– 12
PB
. Each time a consumer buys
A
, his demand
for
B
is
Q
dB
= 4 – 0.4
PB
. The marginal cost of good
A
is a constant $4, and the marginal cost of
good
B
is a constant $0.50. Suppose the price of good
B
is $5. If the monopolist ignores the effect
of additional sales of
A
on the sales of good
B
, how many units of good A will it produce?
A. 665
58. Suppose a multi-product monopolist sells two complementary goods,
A
and
B
. Annual
market demand for good
A
is
Q
dA
= 600 – 25
PA
– 12
PB
. Each time a consumer buys
A
, his demand
for
B
is
Q
dB
= 4 – 0.4
PB
. The marginal cost of good
A
is a constant $4, and the marginal cost of
good
B
is a constant $0.50. Suppose the price of good
B
is $5. What is the effective marginal cost
of selling a unit of good A?
A. $5
59. Suppose a multi-product monopolist sells two complementary goods,
A
and
B
. Annual
market demand for good
A
is
Q
dA
= 600 – 25
PA
– 12
PB
. Each time a consumer buys
A
, his demand
for
B
is
Q
dB
= 4 – 0.4
PB
. The marginal cost of good
A
is a constant $4, and the marginal cost of
good
B
is a constant $0.50. Suppose the price of good
B
is $5. If the monopolist considers the
effect of additional sales of
A
on the sales of good
B
, how many units of good A will it produce?
D. 207.5
60. Suppose a multi-product monopolist sells two complementary goods,
A
and
B
. Annual
market demand for good
A
is
Q
dA
= 600 – 25
PA
– 12
PB
. Each time a consumer buys
A
, his demand
for
B
is
Q
dB
= 4 – 0.4
PB
. The marginal cost of good
A
is a constant $4, and the marginal cost of
good
B
is a constant $0.50. Suppose the price of good
B
is $5. If the monopolist considers the
effect of additional sales of
A
on the sales of good
B
, what will be its total profit from the sales of
A
and
B
?
A. $7,414.75
Essay Questions
61. Explain the difference between a monopoly and a monopsony.
62. Discuss the difference between first-best and second-best price regulation. In your
answer, you should address why governments regulate markets and the difficulties faced when
doing so.
