Question Description

3 page essay questions

1. Is Jill Johnson correct or incorrect when she says the following: “When I am producing 

20,000 pizzas per month , my total cost is $75,000. If I produce 20,001 pizzas, my total cost 

will rise to $75,003. When I produce 20,002 pizzas, my total cost rises to $75,005 pizzas.” 

Therefore, my marginal cost of producing pizzas must be increasing.” Illustrate your answer 

with a marginal cost graph. 

2. Determine which market the following industries fit in. Choose from perfectly 

competitive, monopoly, oligopoly or monopolistic competition. Explain your choice.

a. Corn farming

b. Grocery stores

c. Electric companies

d. Automobile manufacturing

3. In 2006, Wal-Mart closed its stores in South Korea and Germany. Wal-Mart’s most 

successful markets, like Mexico, are those in which it started big. There, the 

company bought the country’s largest and best-run retail chain, Cifra, and has never 

looked back. This year, Wal-Mart is spending more than $1 billion in Mexico to open 

120 new stores. What advantages does Wal-Mart gain from buying large retail 

chains, as it did in Mexico, rather than small chains, as it did in it unsuccessful 

attempts to enter the South Korean and German markets? (Hint: consider 

economies of scale).

4. In 2007, Nick Saban agreed to leave his job as head coach of the Miami Dolphins to 

take a job as head football coach at the University of Alabama at a salary of $4 

million per year for eight years. Boise State paid their coach Chris Petersen 

$500,000 in 2007 and they went undefeated that season. Might Saban still be 

worth a salary of $4 million per year to Alabama even if he is not “eight times 

better” than a coach being paid $500,000 at another school? In your answer, be 

sure to refer to the marginal product of labor and the marginal revenue product of 

labor.

5. A student in an Econ 200 class makes the following remark: “the economic model of 

perfectly competitive markets is fine in theory but not very realistic. It predicts that in the 

long run, a firm in a perfectly competitive market will earn no profits. No firm in the real 

world would stay in business if it earned zero profits.” Do you agree or disagree with this 

statement. Is there a difference between short run and long run losses? Explain. Also 

discuss short term and long terms costs.