Eric Dodge
106752263
Page 1
3/7/2016
NAME:_______________
You may not attach additional paper to this exam. You may use the back page for additional space.
If something is unclear, please do not hesitate to ask for clarification.
1. A professional sports team (i.e. New York Yankees, Dallas Cowboys, Portland Trailblazers) is
sometimes described as a monopoly. Do you agree? Justify your response by using the defining
characteristics of pure monopoly. How does the “relevant market” affect your answer? (14 points)
2. A monopolist has the following total cost function and demand curve:
Price ($) Output (units) Total Cost ($)
10
0
5
a. If the monopolist is a profit-maximizer, how
9
1
6.50
much output should be produced, at what price,
8
2
7.50
and what is the profit that will be realized? (6
7
3
10
points)
6
4
13
5
5
17
4
6
22
3
7
28
2
8
35
1
9
43
0
10
52
b. Now suppose that a fixed cost (i.e. insurance on the building) decreases by $1. How will this affect the
profit maximizing quantity, price and profit realized by the monopolist? Be specific. (6 points)
3. The video “Unions in Crisis” documents the important economic, political and sociological reasons why
union membership has slipped from over 1/3 of the workforce to under 1/6 today. Briefly summarize 2 of
these reasons, using specific examples from the video. (14 points)
Eric Dodge
106752263
Page 2
3/7/2016
4. Suppose a particular labor market is in a state of equilibrium and that there is no government
intervention. Indicate with diagrams how the following events will affect the market for labor and predict
changes in equilibrium employment and the market wage. (6 points each)
a. The demand for the product produced by the labor decreases.
b. The industry experiences technological improvement in the capital equipment with which labor is
combined.
c. The price of capital, a substitute for the labor, decreases.
5. In the video “The Future of Work”, economist Jeremy Rifkin foresees a calamity of global proportions
as 80% of the workforce is marginalized, replaced by robots and computers. Among other things, he
predicts even more polarization between rich and poor. Describe Rifkin’s proposals for avoiding these dire
predictions. (10 points)
Eric Dodge
106752263
Page 3
3/7/2016
6. Suppose the productivity of labor and capital are as shown in the accompanying table. The output of
these resources sells in a purely competitive market for $.50 per unit. Both labor and capital are hired
under purely competitive conditions at $2 and $3, respectively.
Qty of Labor
1
2
3
4
5
6
7
MP of Labor
20
16
12
10
8
4
2
Qty of Capital
1
2
3
4
5
6
7
MP of Capital
20
18
16
12
8
6
4
a. What is the least-cost combination of labor and capital to employ in producing 132 units of output?
Explain. (4 points)
b. What is the profit-maximizing combination of labor and capital the firm should use? What is the
resulting level of output? What is the economic profit? Is this the least costly way of producing the profitmaximizing output? Explain. (6 points)
7. How could the market for Thneeds from “The Lorax”, be an example of a negative externality? In a
clearly labeled diagram, show how it affects supply and/or demand curves for Thneeds. How does this
create a resource problem? (12 points)