What is the relationship (if any) between production technology (i.e. productivity) and cost ?

Final Exam
Essay based. Graphical econ depictions and analysis strongly recommended. Include external research w/citations noted. Same format as mid-term. No surprises. Each question contains references to the Mankiw text by Chapter & pages to assist in constructing your responses.
Apply econ & finance principles, real life situations based on experiences, readings & class discussion + “BB” Husky Course Content notes.
Date released: Saturday, August 6, 2022, 10:00 pmRequired: Exam consists of 8 essay questions, with four (4) being required.
Required questions, # 5, 8, 14, & 16.
Also, @ the end of the exam, are various “bonus” questions of your choice to supplement your grade.
Questions………..
1)What is the relationship (if any) between production technology (i.e. productivity) and cost ? Define the various cost structures (short-run & long-run); Describe the difference between accounting versus economic profit assessing in detail the different cost definitions (explicit versus implicit). Does the concept of diminishing returns affect the total product curve and the shape / direction of marginal cost ? In your analysis, include the concept of a firm’s production function and it’s inverse relationship to costs ? Chapter 17, Figure 1 plus ”FYI”, page 343.
Refer to Chapters 12 & 17, “BB” notes, and in particular, pages 230 – 241, ‘FYI’, page 343 + pages 346-355.
2) What is (if any) the relationship between total, average & marginal cost ? What’s most important in assessing and why ?
Describe such concepts as: Economies of scale; Minimum efficient scale and Diseconomies of scale. How do indivisible inputs affect production costs?
Are there lessons can we learn from the “An Inquiry into the Nations and Causes of the Wealth of Nations” (Adam Smith’s) Pin Factory, regarding specialization and comparative advantage ?
In addition, what can we learn regarding Adam’s Smith assessment of a PIN factory as it relates to comparative advantage & production ?
Refer to “BB”, Chapter 12, 12-3, 12-4, “FYI”, page 238 – 240, & Table 3 , 241.
3) What is the rationale regarding a firm’s output decision as it relates to the shut-down price, break-even and profit maximization? How do entry costs affect the number of firms in a market? Does the consideration of “sunk-cost” enter the business decision as it relates to shut-down price considerations? Chapter 13, pages 248 – 254.
4) What is meant by “natural” versus “regulated” monopoly and how should public policy be structured toward market structure concentration ? Do concepts such as economies of scale, dis-economies of scale come into play when describing an oligopolistic and or monopolistic market structures ? What about anti-trust actions from government ?
Refer to Chapters 13, 13-2, and 14 -1, thru 14-5, & Table 2, page 270 – 279.
5) Required: Highlight the various market structures highlighted in class / chapters as it relates to: Price, Marginal revenue, Total revenue, Price elasticity of Demand; Market power (P / Mc), Marginal cost, allocation / Consumer versus Producer surplus, Product characteristics, Market entry / Patents, Price discrimination, Profit maximization (short run versus long run), Regulatory oversight / Government intervention and Deadweight loss (loss of consumer welfare). Provide industry examples of some of these various market structures ?
Review Chapters 13 – 14, Describe various attributes of each market structure discussed. Be specific and be able to provide graphical & numerical analysis. Refer to class discussion & BB notes. Refer to “Welfare Cost of Monopolies”, section 14 -3, 14-4, Figures 6,7 & 8, 9, “Welfare with and without Price Discrimination”, and Table 3, 294 + “BB” notes.
> What other factors should be discussed in describing the various market structures relative to the production process (K / L ratios), price, cost and product branding, education & innovation ?
Refer to class discussions & “BB” notes…..K / L = Capital to Labor ratios in the production process. Will discuss in class further.
> In your study of the various market structures, what can we learn (if any) from the failed attempts of Anthem BC / BS efforts to purchase CIGNA healthcare and Aetna to purchase Humana where the federal government successfully pursued anti-trust actions. What were the concerns raised by federal regulators concerning these mergers as it relates to market concentration, market power, competition and consumer / producer surplus ?
6) What is a natural monopoly? What happens to price, output and consumer welfare when price controls & regulation are adopted as it relates to average-cost pricing policy? Hint compare price & output considerations between an “unregulated” versus “regulated” monopoly. Whar are various public policies to deal with monopolies ?
Refer to Chapter 14, 14-5, “BB” notes. Figure 10, pages 290 – 293.
7) What happens when “imperfect market information” / “asymmetric information” between buyers & sellers occurs relative to adverse selection and moral hazard ? What can producers (sellers) and buyers (consumers) and government do to reduce the unintended market consequences of asymmetric information ?
Class discussions….Chapter 19, 19-2, 19-3 + “BB” notes. Review 19-2, “Managing Risk”, pages 386 -389.
8) Required: Highlight the different types of goods (public versus private) relative to rivalry, common resources, club goods, excludability and the free-rider principle? What can be suggested (proposed) to overcome the “free-rider problem”? What is the importance of private property rights as it relates to the mitigation of market failure ? What can we learn from “The Tragedy of the Commons” along with “The Importance of Property Rights”?, (Refer to Case Study, Chapter. 11. pages 218 – 223), “Case Study: Why The Cow Is Not Extinct”……Why does Facebook face the “tragedy of commons” ?, “FYI”, pages 220 -221.
Refer to “BB” Notes + Chapters 10 & 11-1, 11-32, 11-3 & 11 – 4 + Figure 1.
9) What is meant and what are documented examples of market failure ? In your analysis, what are externalities (i.e. third-part effects (spillovers in market transactions)) and how can the market be influenced by public policy to incent “positive” and mitigate” negative externalities” ? Can “private solutions” address externalities (positive & negative externalities” ?
Refer to “BB” Notes + Chapters 10, 10-1 & 10.2, Figures 1,2, 3 & 4, 10-3 + 10-4.
10) What are the “Arguments For & Against Trade Liberalization” ? What is meant by tariffs, import quotas & capital flows and their effects in impacting economic growth world-wide ? Refer to “FYI”, page 175. Can trade retaliation occur when trade barriers are created ? Who wins & who losses ? Why was President Trump’s protectionism futile ? “In The News”, pages 182-183.
Refer to Chapter 9, Attn; Pages 168 – 174 & 175 – 184. (This is a “lay-up” for all of you !)
11 ) The current administration has proposed a series of significant tax increases on income, capital gains (investments), consumption and business (corporate minimum tax). What are the economic “pros” and cons” of this strategy as it relates to economic growth ? Who could ultimately benefit, pay and could output, i.e. economic growth be impacted ?
Refer to Chapter 8. Pay attention to pages 157 – 164, highlighting the “trade-off” between equity & efficiency in a tax structure. Review Figures 5 & 6, “Tax Distortions” & “How Deadweight Loss and Tax Revenue Vary with the Size of a Tax”, pages 159 – 163. Discuss the components and relevance of “TESDBO”………..(Another “lay-up”)………

12 ) How can the monetary, fiscal & trade policies adopted by global leaders (i.e. government public policy & central bank actions globally) directly impact firm and consumer behaviors ? What is meant by “Aggregate Demand & Aggregate Supply” and how do they influence economic growth ?

Refer to Chapters 21, 22 & Chapter 23, pages 472 – 480.

13 ) How does changes in the price level impact consumption (“wealth effect”), interest rate (“interest rate effect”) and the exchange rate (“exchange rate effect”).

Refer to Chapter 18, Chapter 22 and 23, pages 478 – 479. Pages 495 – 498, “Two Big Shifts in Aggregate Demand: The Great Depression and World War 2”.

14 )Required: What is meant by the reference “monetary system”? What is the meaning of money ? What are the basic functions & kinds of money of money ? What is the Federal Reserve and How Can the Federal Reserve Indirectly Influence interest rates & money supply and hence GDP ? Explain how the “FED” is employing it’s various monetary tools to support the economy during the pandemic ?

Refer to Chapter 21. Pages 422 – 425; Know the make-up of the Federal Reserve System, (FRS) pages 434 – 440. What are it’s principal policy stated objectives & “levers” to influence economic growth ? How can the FRS impact us ? How is money created ? What can we learn from the Great Depression as it relates to money supply, bank failures & solvency concerns of our banking system ?

15) What is the role of the financial system ? Why is it important for people, institutions to save ? What is meant by diversification of a portfolio of stocks & bonds ? In your analysis, what is meant by private savings, public savings & national savings ? What happens when a government runs a budget deficit ? How could it effect interest rates, investment and economic growth ?

Refer to Chapter 18. Important: Refer to Figure 1, page 370 – 371, Figure 2,3, Savings & Investment Incentives, pages 372 – 374and “The Effect of a Gov Budget Deficit”, pages 374 – 375….Pay particular attention to the “Crowding Out Effect”.

16) Required: Why is sustainable economic growth important ? How do we measure economic growth ? Why is the concept of productivity so important (pages 345 – 353) ? What drives economic growth ? Is GDP a good measure of economic growth ? How do we measure the cost of living (real versus nominal GDP ?)…..What is meant by the GDP Deflator, Consumer Price Index, Producer Price Index, Personal Consumption Expenditure ? Are there limitations in measuring the cost of living ? Refer to case study, “FYI, “Why Is So Much of Africa Poor” ? pages 353 – 355 ? What can we learn from other countries regarding growth & opportunities ?

Refer to Chapter 15 (pages 302-313), 16 (pages 319-328), + Accumulative debt obligations ? Review some important GDP national account identities, Sec 18-2a, pages 367 – 369. Attn: Review Chapter 17, in particular, pages 340 – 353 regarding “Determinants of Growth”.

17) Describe unemployment, underemployment, labor force participation and the labor market experiences of various demographic groups (Chapter 20, Table 1& 2, pages 401 – 405). What are the different measures of unemployment & how do how do they differ ? (Table 1 & 2, pages 405). What are the different types of unemployment ? frictional, structural, & cyclical.

Refer to Chapter 20. Attn: Why is some frictional unemployment inevitable ? What is meant by “discouraged workers” ? & how does unemployment relate to the Production Possibilities Frontier ? Also, Important, review Table 2,“Different Measures of Labor Utilization”…..know this !

18) What is meant by “The Theory of Efficiency Wages”, and explain ways in which a firm might increase it’s profits by raising wages it pays ? What type of government program can partially protect workers incomes when they become unemployed ? What could be the unintended effects of a liberal unemployment insurance program ?

Refer to “BB” Notes + Chapter 20, page 415. Attn: Be able to describe the effect of a wage which is above it’s equilibrium (market) level, refer to Figure 4, page 411, assessing the economic effects of unions, collective bargaining and other forms of employment constraints.

19) What is the Classical Theory of Inflation ? What is the “Fisher Effect” ? What is meant by the monetary equation, MV = PY ? Why is a stable currency value a major goal of our Federal Reserve ? Why is inflation & severity of inflation considered a “stealth” tax adversely impacting society, especially those who have the least ? Discuss “The Costs of Inflation”…..Who wins and how losses when unanticipated inflation occurs; Hint: Borrowers versus Lenders (redistribution of income ?).

Chapter 22 + “BB” Notes. 22-1, + 22-1f, “Case Study” (pages 452-458) + 22-1h (Fisher Effect) + “The Costs of Inflation”, 22-2. See link below. Source. WSJ , August 12, 2021. Editorial. Please cut & paste.

https://www.wsj.com/articles/inflation-government-spending-workers-prices-wage-growth-stagnation-monetary-policy-biden-11628710715?mod=hp_opin_pos_2

20) What were the causes of the “Great Depression” (1929 – 1941) and “Great Recession” (2008 – 2009). Address monetary, fiscal, trade & financial policy impacts to aggregate demand & aggregate supply.
Question…What can we learn by studying economic history as it relates to crafting future, sustainable economic policy ? Review Chapter 23, pages 485-498 + Chapter 18, (“FYI”), page 378 “FYI, Financial Crisis” + “BB” Notes.