Question

1. All else constant, an increase in the price of labor would cause the total amount of output that can be produced with a fixed amount of spending to ________. This would result in a movement to a ________ isoquant.

		increase; lower
		decrease; lower
		decrease; higher
		increase; higher

2. All of the following are strategies a firm with market power can adopt to increase it profits over time  except:

		setting price equal to the marginal costs of production.
		erecting barriers to entry.
		mergers with, and acquisitions of, competing firms.
		influencing the regulatory process.

3. Which of the following statements best describes the strategy of many potato growers since 2005?

		Growers have worked together to reduce supply and stabilize demand. As a result, the equilibrium price has been propped up and allowed farmers to earn what they consider a decent profit.
		because efforts by potato growers to restrict supply are illegal in the United States, they have focused exclusively on increasing demand to increase their profits.
		Growers have restricted supply so much that there is now a severe shortage of potatoes in the United States.
		Growers have continued to compete vigorously with each other, causing prices and profits to decrease.

Answer 1

Q1) The answer is (b) decrease, lower

As the price of labor increases, the total amount that can be produced with fixed spending decreases as less units of labor can be employed, ceterius paribus. Thus, lower production leads to a shift to a lower isoquant

All other options are incorrect as production does not increase and shift is not to a higher isoquant

Q2) The answer is (a)

Setting price = marginal cost is a condition that has to be met by firms irresective of the market power or the period of operations. The firm can not increase profits exculsively by using this strategy.

All other options are incorrct as these reflect practices of firsm with market power that can increase profits in the long run.