Q&A Hero

Q: What is the approximate price of a $10,000 coupon bond that pays $1,000 in one year and $1,000 in two years at maturity? The effective yield on the bond is 6 percent. A) $10,000 B) $10,730 C) $10,900 D) $12,000

Q: Two corporations (TruBlu and FlyByNight) issue perpetuities that both pay $1,000 per year, but the market price of the FlyByNight bonds are much lower. The difference in the bond prices may reflect the belief that the bonds issued by FlyByNight are ________ risky when compared to the TruBlu bonds. A) less B) more C) equally D) none of the above

Q: Use the following statements to answer this question: I. The effective yield is generally easier to compute for a perpetuity than for a 10-year bond. II. Two perpetuities that have the same annual payment must have the same price, even if the issuers of the bonds are different companies. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II is false.

Q: If a coupon bond has a "face value" of $1000, it means that A) the original purchaser paid $1000 for it. B) each purchaser must pay $1000 for it. C) it was purchased for at least $1000 and perhaps more. D) the holder will be paid $1000 when the bond matures. E) the holder will be paid $1000 plus accumulated interest when the bond matures.

Q: If the payment stream of a bond remains the same and the price of the bond goes down, the A) effective yield is unchanged. B) effective yield rises. C) effective yield decreases. D) bond is reissued to reflect the higher interest rate. E) bond is reissued to reflect the lower interest rate.

Q: A perpetual payment of $10,000, offered for sale at $125,000, is being offered at an effective yield of A) 8%. B) 2% C) 5%. D) 80%. E) 92%.

Q: A perpetuity for sale at $100,000 that promises a yearly payment of $5,000 has an effective yield of A) 2%. B) 5%. C) 20%. D) 50%. E) 2,000%.

Q: The PDV of a perpetuity with a yearly payment of $500 at an interest rate of 5% is A) $100. B) $5,000. C) $25,000. D) $10,000. E) $100,000.

Q: As interest rates fall, A) the values of bonds rise. B) the values of bonds fall. C) the values of bonds are unchanged. D) the value of perpetuities are unchanged, but the value of other bonds change in value. E) the value of all bonds except perpetuities change.

Q: A bond has a current market value of $800. The holder of the bond will receive a single payment of $1,000 one year from now. The interest rate is 10 percent. The effective yield on the bond is: A) $200. B) 10 percent. C) 25 percent. D) negative. E) The yield cannot be determined with the information provided.

Q: Two bonds of equal risk are for sale on the secondary bond market. The two bonds have the same face value, and both mature in 10 years. Bond A pays $10 per year and bond B pay $15 per year. Which bond will sell for a higher price? A) Bond A B) Bond B C) They will sell for the same price. D) The relative prices will depend on the expected interest rate over the next 10 years.

Q: You have won a contest and are allowed to choose between two prizes. One prize is $200 today and another $200 one year from now. The other prize is $100 today and an additional $325 one year from now. At what interest rate (if any) would you be indifferent between the two prizes?

Q: Your 65-year-old father is going to retire next year. He would like to have an income of $20,000 per year for the remainder of his life. If he is expected to live for ten more years, write an algebraic expression to indicate the amount of money he needs today to pay him this sum of money if the interest rate is 10 percent.

Q: The authors provide an example that illustrates the calculation of the present discounted value for the lost wages from a deceased worker, and one component in this calculation is the worker's annual mortality rate (m). Suppose we conduct this computation in two different ways --- one calculation assumes m is constant for all future periods, and the other calculation allows m to decline over time due to improvements in medical technology. Which estimated PDV will be larger? A) The PDV with constant m will be larger B) The PDV with variable m will be larger C) The two PDV's will be equal D) The answer to this question depends on the assumed interest rate

Q: How would we compute the present discounted value of payments of $8,000 received three years in the future and $10,000 received four years in the future? The interest rate is expected to be 5 percent for the next four years. A) 8,000/((1.05)3) + 10,000/((1.05)4) B) 8,000/((1.5)3) + 10,000/((1.5)4) C) 8,000/(1.05) + 10,000/(1.05)2) D) 8,000/(1.03) + 10,000/(1.04)

Q: Your uncle wants to help you with your college expenses, and he promised to pay you $10,000 next year and $15,000 in two years. The current interest rate is 6%, and you expect that this interest rate will be the same for the next year and will increase to 8% in the year after. What is the formula that you should use to compute the present discounted value of your uncle's contribution to your education expenses? A) 0 + 10,000 + 15,000 B) 10,000/(1.06) + 15,000/((1.06)*(1.06)) C) 10,000/(1.06) + 15,000/((1.06)(1.08)) D) 10,000/(1.06) + 15,000/((1.08)(1.08))

Q: Suppose you are an attorney, and you are defending a client in a wrongful death suit. The deceased was a pilot for an aerial acrobatics team, and the opposing attorney has prepared an an estimate of the value of lost income that includes the mortality rate for all pilots. You should argue that the attorney's estimate of lost earnings is too ________ because the mortality rate for aerial acrobats is ________ than for other types of pilots. A) low, lower B) low, higher C) high, lower D) high, higher

Q: Scenario 3: Consider the following information. Melissa Qwerty was killed in a freak typewriter accident. Her family sued the typewriter company for the value of the income loss her death represented. The family demanded $X in compensation. Which of the following would raise $X? A) Lower current income B) Lower expected growth in income C) Lower mortality rates D) Lower interest rates E) Higher age at time of death

Q: Scenario 3: Consider the following information. Melissa Qwerty was killed in a freak typewriter accident. Her family sued the typewriter company for the value of the income loss her death represented. The family demanded $X in compensation. $X would be higher if Ms. Querty's A) income and the interest rate were higher. B) income and the interest rate were lower. C) income were higher and the interest rate were lower. D) income were lower and the interest rate were higher. E) mortality rate and growth in income were lower.

Q: Scenario 3: Consider the following information. Melissa Qwerty was killed in a freak typewriter accident. Her family sued the typewriter company for the value of the income loss her death represented. The family demanded $X in compensation. $X would be higher if A) her income were higher and she were younger. B) her income were higher and she were older. C) her income and the mortality rates for someone of Ms. Qwerty's statistical profile were both lower. D) her income and the mortality rates for someone of Ms. Qwerty's statistical profile were both higher. E) she were older and the relevant mortality rate were lower.

Q: Scenario 2:Consider the payment streams listed below that are available from different capital projects for Furry Software. The firm must choose to implement just one out of the three possible projects.If the interest rate were 20%, Furry Software shouldA) retool the offices.B) rewire the network.C) move to Southern California.D) be indifferent between retooling and rewiring.E) be indifferent between retooling and moving.

Q: Scenario 2:Consider the payment streams listed below that are available from different capital projects for Furry Software. The firm must choose to implement just one out of the three possible projects.If the interest rate were 2%, Furry Software shouldA) retool the offices.B) rewire the network.C) move to Southern California.D) be indifferent between retooling and rewiring.E) be indifferent between rewiring and moving.

Q: Scenario 2:Consider the payment streams listed below that are available from different capital projects for Furry Software. The firm must choose to implement just one out of the three possible projects.With no other information available, it isA) clear Furry should retool the offices.B) clear Furry should rewire the network.C) clear Furry should move to Southern California.D) clear Furry should either retool the offices or rewire the network.E) not possible to tell which payment stream is most valuable to Furry.

Q: Scenario 1: This year Jacob Verytall signs a "Fifty Million Dollar" contract with the Mission City Muckrakers, a new basketball team. He will be paid $10 million per year over the next 5 years beginning next year. The interest rate is 10%, and the Muckrakers have enough in the bank to generate the payment stream. If the interest rate is expected to fall to 5% in years 4 and 5, in terms of current dollars the value of the Muckrakers payments will A) rise. B) stay the same. C) fall. D) change, but we cannot answer this question without further information.

Q: Scenario 1: This year Jacob Verytall signs a "Fifty Million Dollar" contract with the Mission City Muckrakers, a new basketball team. He will be paid $10 million per year over the next 5 years beginning next year. The interest rate is 10%, and the Muckrakers have enough in the bank to generate the payment stream. If the interest rate falls, A) the present value of this contract will fall. B) the present value of this contract will be unaffected. C) the present value of this contract will rise. D) Jacob will be paid less than $10 million each year. E) Jacob will be paid more than $10 million each year as he can invest the money.

Q: Scenario 1: This year Jacob Verytall signs a "Fifty Million Dollar" contract with the Mission City Muckrakers, a new basketball team. He will be paid $10 million per year over the next 5 years beginning next year. The interest rate is 10%, and the Muckrakers have enough in the bank to generate the payment stream. In terms of this year's dollars, this "Fifty Million Dollar" contract is worth approximately A) $45.4 million. B) $37.9 million. C) $10 million. D) $9.4 million. E) $7.5 million.

Q: A certain magazine offers its subscribers the opportunity to "Buy Now and Save." If at the time their subscription renewal is due they agree to pay for 2 years rather than 1, the renewal price will be $50 per year rather than the usual $60 per year. At what interest rate will the consumer, who is certain she will subscribe to the magazine for the next 2 years, decide to "Buy Now and Save"? A) any interest rate under 50 percent B) any interest rate over 1.5 percent C) any interest rate over 150 percent D) any interest rate under 5 percent E) She will always take this offer if she is absolutely certain to buy the magazine for another 2 years.

Q: When the interest rate is R, the formula for finding the future value of $M two years from now is A) M (1 + R)2. B) M (1 + R2). C) M / (1 + R)2. D) M / (1 + R2).

Q: The formula for finding the present value of an amount M that will be received one year from now, when the interest rate is R, isA) M x (1 + R/100).B) M x (1 + R).C) M / (1 + R).D) M / R.E) M / (100R).

Q: When the interest rate is R, the formula for finding the value of a current amount $M one year from now is A) M (1 + R/100). B) M (1 + R). C) M / (1 + R). D) M / R. E) M / (100R).

Q: You have won a contest and are allowed to choose between two prizes. One option is to receive $200 today and another $200 one year from now. The second option is $100 today and an additional $325 one year from now. At what interest rate (if any) is the present value of the two prizes identical? A) 0 percent B) 5 percent C) 10 percent D) 25 percent E) none of the above

Q: If the interest rate is 10%, the present value of $1 next year is A) $1.20. B) $1.10 C) 91 cents. D) 10 cents. E) 9 cents.

Q: If the interest rate is 5%, in one period the future value of $1 today is A) $1.20. B) $1.05. C) 95 cents. D) 20 cents. E) 5 cents.

Q: The present value formula makes it apparent that: A) a decline in the interest rate will cause a decision maker to weigh recent period returns relatively more heavily than before the decline. B) an increase in the interest rate will cause a decision maker to weigh distant (or future) returns relatively more heavily than before the increase. C) the present value of a fixed sum decreases as the time until it is to be paid increases. D) all of the above E) both A and C.

Q: Which of the following statements correctly characterizes the problem with comparing production outcomes that are stocks and flows? A) Labor usage is always a flow, which makes it difficult to compare with stock inputs like capital. B) Most capital inputs are stocks, but the returns on these investments (profits) occur as a flow. C) Most capital inputs are flows, but economists treat these expenditures as stocks by using the opportunity or economic costs associated with these inputs. D) Business returns or profits may be equivalently viewed as stocks or flows, which makes it difficult to compare the returns with the input expenditures.

Q: To avoid the stock versus flow issue in production, some economists discuss capital usage in terms of rented capital. For example, your firm may not directly own some of the capital inputs to your production operation, and these capital inputs are employed on an hourly or daily basis. Which of the following inputs is a good example of a capital input that acts like a flow? A) Land and buildings that are owned by the firm B) A long-term licensing agreements that allow you to use a patented idea owned by another firm C) A forklift that is rented on an hourly basis D) all of the above

Q: If a firm can earn a profit stream of $50,000 per year for 10 years, that profit stream is worth A) more than $500,000 today. B) $500,000 today. C) less than $500,000 today, but a positive amount. D) nothing today E) some amount, but whether it is more, less or the same as $500,000 cannot be determined.

Q: Which is a stock variable? A) Labor B) Profit C) Income D) Capital E) Price

Q: Which of the following questions is addressed when hiring capital, but not addressed when hiring labor? A) How much are future profits worth today? B) How much are today's profits worth in the future? C) How much are the future's profits worth in the future? D) How much are today's profits worth today? E) All questions present when capital is purchased are present when labor is purchased.

Q: The marginal revenue product of capital inputs does not provide complete information about optimal use because capital is: A) money. B) not an input. C) an output as well as an input. D) durable. E) all of the above

Q: The Vortex Corp. has an opportunity to invest $1,500,000 in investment A or in investment B. Investment A promises to pay $500,000 profit at the end of the first year, $550,000 at the end of two years, $600,000 at the end of three years, and $625,000 at the end of four years. Investment B promises to pay $25,000 profit at the end of the first year, $100,000 at the end of two years, $600,000 at the end of the third year, and $1,000,000 at the end of four years. Assume that nine percent per year is an appropriate discount rate for each investment. Also, assume a zero scrap value for each investment at the end of four years. Determine which investment promises to be the better of the two for the company.

Q: You have been offered the opportunity to purchase a bond that will pay $100 in interest at the end of each of the next three years, and a $1000 repayment of principal at the end of the third year. The current interest rate is 12%.a. Calculate the selling price of the bond. (You may assume that 12% accurately reflects the risk of the bond.)b. What would happen to the selling price of the bond if interest rates should fall?

Q: The Clemson Manufacturing Corp. engineers have estimated that a new factory can be constructed for the manufacture of hydraulic valves and fittings. Two different technologies, A and B, have been considered in the manufacturing process. The costs of the factory and annual earnings are given below for both technologies. Capital Costs Earnings (in $millions) (in $millions) End of the Year A B A B 0 $10 $15 $0 $0 1 10 10 -1 0 2 10 0 1 2 3 0 0 5 10 4 0 0 10 10 5 0 0 20 10At the end of five years, technology A will have a scrap value of one million dollars, and technology B will have a scrap value of 5 million dollars. Assume that these two projects are equally risky and the appropriate discount rate is 10 percent per year. Calculate the net present value of each of these factories. Determine if either or both would be feasible. Does it matter whether or not real or nominal terms are used for capital costs, cash flows, and discount rate? Explain.

Q: Suppose you invest $100,000 in a new machine today, and you earn a $150,000 return in one year. What is the internal rate of return on this investment? A) 10 percent B) 25 percent C) 50 percent D) 100 percent

Q: Your firm is evaluating a potential investment in new machinery, but the manager in charge of the project uses an opportunity cost of capital that is too large. How does this error affect the projected net present value of the firm's investment? A) NPV is overstated B) NPV is understated C) NPV is unaffected D) NPV changes from positive to negative

Q: For net present value calculations, the rate of return that one could earn by investing in another project with similar risk is known as the: A) real interest rate. B) nominal interest rate. C) prime interest rate. D) opportunity cost of capital.

Q: You manage a new product development team for an electronics manufacturer, and your firm's policy is that all new projects must pay for themselves in the first five years. Your team has projected that the first year of the project requires an initial investment of $2 million with no revenue, the second year loss is $500,000, the net revenue for year 3 is zero, and you earn $1.8 million in both year 4 and year 5. If the opportunity cost of capital for your firm is 8%, should you go ahead with this project? A) No, the expected NPV is negative B) Yes, the expected NPV is roughly $290,000 C) Yes, the expected NPV is $1.1 million D) We do not have enough information to answer this question.

Q: A $130,000 investment in new equipment this year will increase your firm's profits by $50,000 in each of the next 3 years. What is the net present value of this investment if your firm's opportunity cost of capital is 10 percent? A) -5,657 B) 5,657 C) 124,343 D) 128,850

Q: The real discount rate and the nominal discount rate differ in their treatment of A) risk. . B) market return. C) inflation. D) expected risk.

Q: If the inflation rate falls and nominal interest rates are unchanged, A) inflation will fall. B) inflation will continue at the same rate. C) real interest rates rise. D) real interest rates are unaffected. E) real interest rates fall.

Q: If an individual has $10,000 in a savings account paying 3% and the inflation rate is 2%, the nominal interest rate is A) 3% and the real rate is 5%. B) 5% and the real rate is 7%. C) 5% and the real rate is 3%. D) 3% and the real rate is 1%. E) 5%.

Q: The real interest rate is A) the nominal rate plus the rate of inflation. B) the nominal rate minus the rate of inflation. C) the nominal rate divided by the rate of inflation. D) the nominal rate multiplied by the rate of inflation. E) the nominal rate.

Q: The interest rate R in an NPV calculation should always A) be the return that the firm could earn on a similar investment. B) be the riskless interest rate (e.g., U.S. Treasury bills). C) be the rate on corporate bonds. D) be the rate of return available in the stock market. E) be the interest rate at which the firm has to borrow.

Q: The first term in an NPV calculation is usually A) positive, because firms consider only positive returns. B) positive, because interest charges do not accrue until the second period. C) zero, because interest charges do not accrue until the second period. D) negative, because funds for the project have to be borrowed up front before it is begun. E) negative, because the cost of the project is immediate, but revenue streams from the project come later.

Q: The "NPV Criterion" is that a firm should invest in a new capital project if A) the present value of the expected future cash flows is larger than the present value of the cost of the investment. B) the future value of the expected future cash flows is larger than the cost of the investment. C) financing can be secured on the basis of new bonds. D) financing can be secured on the basis of new stocks. E) financing is not necessary because there are enough liquid assets in the company's portfolio to afford the investment.

Q: You have been hired by an attorney to perform an economic analysis of lost wages in a wrongful death suit. The case involves an insurance agent, John Doe, who was killed in an auto accident a few days after his 59th birthday. Mr. Doe could have expected to earn $75,000 this year. Data suggest that the income of insurance agents has risen an average of 6% over the past 20 years. Mr. Doe's expected retirement age was 65, i.e., on his 65th birthday. Available data provide the mortality rates given below for individuals of Mr. Doe's sex and occupation at various ages. Ten percent appears to be the appropriate discount rate. Age Mortality Rate 59 0.06 60 0.075 61 0.09 62 0.10 63 0.12 64 0.15 65 0.16 a. Calculate the present discounted value of Mr. Doe's expected earnings stream. (For simplicity, assume he receives all of his earnings for the preceding year on his birthday.) b. The attorney has asked your advice regarding a minimum figure that should be accepted as an out-of-court settlement. What guidance can you give the attorney? Would additional information allow you to give the attorney a more precise estimate of the figure that should be accepted? Give an example of how more information would help. c. You must be prepared for cross-examination by the defendant's attorney. Where would you expect the opposing attorney to attack your testimony?

Q: What is the relationship between interest rates and bond prices? Explain.

Q: Firms that issue callable bonds have the option of repaying the principal to the bond buyers before the stated maturity date for the bonds. Firms may call their bonds before maturity in order to avoid making some of the coupon payments. Should we expect the price of a callable bond to be higher or lower than the price of a non-callable bond that has the same coupon payment, principal, and effective yield? A) Price of the callable bond should be higher B) Price of the bonds should be the same C) Price of the callable bond should be lower D) We need to know the year in which the bond is called in order to compare the prices

Q: Which of the following is NOT a factor that has contributed to declining private-sector differential between union and nonunion wages in the U.S. since 1980? A) Globalization of the production process B) Improved ability of firms to substitute capital for labor in production C) Adoption of two-tiered wage and benefit structures by unionized firms D) Declines in the unemployment and health insurance premiums paid by union workers

Q: Based on the example provided by the authors, what is the key factor that explains much of the growing inequality in wages paid to different types of workers in the U.S. since 1980? A) Changes in the gender composition of the work force B) Changes in the age distribution of the work force C) Differences in computer and data analysis skills D) Changes in the geographic concentration of workers

Q: Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects a $1 per hour fee to cover unemployment insurance for each union worker. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market? A) After-tax wages and employment decline. B) After-tax wages increase and employment declines. C) Employment increases and after-tax wages decline. D) No change in after-tax wages or employment levels.

Q: Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects an annual $10,000,000 "administrative fee" from each union in this situation. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market? A) Wages and employment decline. B) Wages increase and employment declines. C) Employment increases and wages decline. D) No change in wages or employment levels.

Q: Use the following statements to answer this question: I. A positive deadweight loss necessarily occurs in labor markets that have one seller (e.g., labor union). II. The deadweight loss in a labor market with one seller (e.g., labor union) is smaller if the union maximizes the total wages earned by union members than if the union maximizes total economic rents. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and there is wage discrimination in the union and nonunion sectors. If the union shifts its policy from maximizing total economic rents to maximizing total wages earned by members, what happens to the equilibrium employment level and wage for non-union workers? A) Both increase. B) Employment increases and wage declines. C) Wage increases and employment declines. D) Both decline.

Q: Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for non-union workers if the union exercises its bargaining power? A) Both increase. B) Employment increases and wage declines. C) Wage increases and employment declines. D) Both decline.

Q: Suppose a labor market has perfectly inelastic supply that is composed of union and non-union workers, and both groups of workers initially earn the perfectly competitive wage. What happens to the equilibrium employment level and wage for union workers if the union exercises its bargaining power? A) Both increase. B) Employment increases and wage declines. C) Wage increases and employment declines. D) Both decline.

Q: Figure 14.4Given the information in Figure 14.4, the bilateral monopoly wage rate is:A) W1.B) W2.C) W3.D) W4.E) Any of the above.

Q: Figure 14.4Given the information in Figure 14.4, the monopsony wage rate is:A) W1.B) W2.C) W3.D) W4.E) none of the above

Q: Figure 14.4Given the information in Figure 14.4, the monopoly wage rate is:A) W1.B) W2.C) W3.D) W4.E) none of the above

Q: Figure 14.4Given the information in Figure 14.4, the competitive wage rate is:A) W1.B) W2.C) W3.D) W4.E) none of the above

Q: Figure 14.3A labor union is exercising monopoly power in the labor market.Refer to Figure 14.3. To maximize the number of workers hired, the labor union will agree to wage rate:A) W0.B) W1.C) W2.D) W3.E) none of the above

Q: Figure 14.3A labor union is exercising monopoly power in the labor market.Refer to Figure 14.3. To maximize total wages paid to workers, the labor union will agree to wage rate:A) W0.B) W1.C) W2.D) W3.E) none of the above

Q: Figure 14.3A labor union is exercising monopoly power in the labor market.Refer to Figure 14.3. To maximize economic rent, the labor union will agree to wage rate:A) W0.B) W1.C) W2.D) W3.E) none of the above

Q: When comparing the market price of an input in a market characterized by bilateral monopoly to a perfectly competitive price A) the bilateral monopoly price is always higher than the competitive price. B) there is no difference; the bilateral monopoly price equals the competitive price. C) the bilateral monopoly price is always less than the competitive price. D) the bilateral monopoly price can be higher than, lower than, or equal to the competitive price.

Q: An example of monopoly power in input markets is A) major league baseball owners in the market for player services. B) the United Auto Workers union in the market for auto worker services. C) OPEC in the market for crude oil. D) all of the above

Q: Data in the following table refer to the purchase of a resource by a pure monopsonist. Let the resource be labor time L, measured in hundreds of hours per day. Units of Labor Marginal Average Marginal Revenue Input Expenditure Expenditure Product L ME AE MRP 1 10 10 16 2 12 11 15 3 14 12 14 4 16 13 13 5 18 14 12 6 20 15 11 7 22 16 10 8 24 17 9a. Determine the profit maximizing purchase rate of labor for the monopsonist.b. If this market were not monopsonistic but competitive, what would be the purchase rate of labor time?c. Determine the equilibrium wage rate in both the monopsonistic and competitive markets?

Q: In some remote communities, there was only one employer in the local labor market several years ago, but the number of firms that hired workers in the market increased over time. What is the expected change in the local labor market as the number of employers increased (ceteris paribus)? A) Wages and employment increase B) Wages remain the same but employment increases C) Wages increase but employment remains the same D) Wages and employment decline

Q: A major computer software company maintains a technical support center in a rural area and is the only employer in this region. Suppose the local labor supply curve shifts leftward due to net migration of workers from the area. What happens to the equilibrium outcome in this labor market? A) Labor demand shifts rightward, equilibrium wage and employment levels decline B) Labor demand shifts rightward, equilibrium wage and employment levels increase C) Labor demand curve remains the same, equilibrium wage and employment levels increase D) Labor demand curve remains the same, equilibrium wage increases, and employment declines

Q: A bilateral monopoly is characterized by a market with a single buyer and a single seller. Which factor is most likely to determine the market outcome in this situation? A) Share of total costs that are fixed B) Degree of demand elasticity C) Degree of supply elasticity D) Bargaining power of the firms

Q: A major computer software company maintains a technical support center in a rural area and is the only employer in this region. Suppose the firm develops a new software system for managing technical support calls, and the marginal product of labor increases. What happens to the equilibrium outcome in this labor market? A) Labor demand shifts rightward, equilibrium wage and employment levels decline B) Labor demand shifts rightward, equilibrium wage and employment levels increase C) Labor demand curve remains the same, equilibrium wage and employment levels increase D) Labor demand curve remains the same, equilibrium wage and employment do not change E) none of the above