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Economics
Which of the following could be considered a monopoly?a. Kate Hudson (an actress)b. DeBeers diamond companyc. The only doctor in a small townd. Ford Motor Company
Barriers to entry are important in the creation of monopolies because they keep competitors out of the industry. Although many types of barriers exist, historically, ownership of an essential
Is it optimal for the monopolist to operate on the inelastic portion of the demand curve? Why or why not?
Fill in the missing data in the following table for amonopolist.
Assume that the monopolist in problem 4 had fixed costs of $10 and a constant marginal cost of $4 per unit. Add columns to the above table for Total Cost, Marginal Cost, andprofit.
The Mobile Phone Company has served Mobile, Alabama, since the 1930s as a government-authorized natural monopoly. The following table describes a portion of the demand curve for long-distance service
The following table shows the demand for water and cost conditions for the New South Springdale Water Utility, a pure monopoly.a. Complete the table.b. What is true about the relationship between
A patent gives a firm a monopoly in production of the patented good. While the monopoly profits provide an incentive for firms to innovate, the monopoly power imposes a cost on consumers. Why do
Use the accompanying diagram to answer ac.a. Assuming the monopolist indicated in the diagram produced at all, indicate its profit-maximizing quantity and price.b. Add an ATC curve that
If economic profits were zero, would a monopolist ever stay in business? Why might it be possible for a monopolist to earn positive economic profits in the long run?
What is meant by “the welfare loss” of monopoly? Why does no welfare loss occur if a monopolist successfully practices perfect price discrimination?
Consider the data in the following table:A simple monopolist with these fixed and variable cost schedules maximizes profits at what level ofoutput?
Explain how each of the following is a form of price discrimination.a. A student discount at the movie theater.b. Long-distance phone service that costs 15 cents per minute for the first 10 minutes
In October of 1999, Coca-Cola announced that it was considering testing a new vending machine that was temperature sensitive. The price of the soft drinks in the machines would be higher on hot days.
Compare the size of the welfare (deadweight) loss under monopoly in the case of perfect price discrimination and under the standard case of simple monopoly. Explain.
Use the accompanying diagram to answer ac.a. Indicate the efficient result on the graph.b. Illustrate the profits or losses from the efficient result in a.c. Show the average cost-pricing
Governments around the world are allowing competition in the production of goods and services that have historically been considered natural monopolies. Competition has been introduced in industries
The Mississippi Bridge Authority operates a toll bridge that crosses the river near St. Louis. Traffic over the bridge includes tourist traffic and commercial traffic. It also includes commuters who
True or False:1. In terms of the number of firms in an industry, monopoly is at the other end of the spectrum from perfect competition.2. As long as market demand curves are downward sloping, the
True or False:1. The marginal revenue curve for a monopolist lies below the demand curve.2. For a monopoly to get revenue from marginal customers, the firm has to lower the price so that marginal
True or False:1. If, at a monopolist’s profit-maximizing price and output, the price is greater than average total cost, the monopolist is generating economic losses.2. Economic profits cannot
True or False:1. By imposing monetary and nonmonetary costs on monopolists, antitrust policies aim to reduce the profitability of monopoly.2. Government regulation of monopolies aims to achieve the
Multiple Choice Questions1. Which of the following is not a source of product differentiation?a. Physical differences in productsb. Differences in quantities that firms offer for salec. Differences
Multiple Choice QuestionsUse the accompanying diagram to answer questions 12.1. Which of the demand curves represents a long-run equilibrium for the firm?a. D0b. D1c. D2d. D32. Which of
Which of the following markets are perfectly competitive or monopolistically competitive. Why?a. Soy marketb. Retail clothing storesc. Spago’s Restaurant Beverly Hills
List three ways in which a grocery store might differentiate itself from its competitors.
What might make you choose one gas station over another?
If Frank’s hot dog stand was profitable when he first opened, why should he expect those profits to fall over time?
Draw a graph showing a monopolistically competitive firm in a short-run equilibrium where it is earning positive economic profits. What must be true of price versus average total cost for such a
Draw a graph showing a monopolistically competitive firm in a short-run equilibrium where it is earning economic losses. What must be true of price versus average total cost for such a firm? What
How are monopolistically competitive firms and perfectly competitive firms similar? Why don’t monopolistically competitive firms produce the same output in the long run as perfectly competitive
Can you explain why some restaurants are highly profitable while other restaurants in the same general area are going out of business?
Suppose that half the restaurants in a city are closed so that the remaining eateries can operate at full capacity. What “cost” might restaurant patrons incur as a result?
How is price related to marginal and average total cost for monopolistically competitive firms in the following situations?a. A short-run equilibrium where it is earning positive economic profits.b.
What is meant by the price of variety? Graph and explain.
How does Starbucks differentiate its product? Why does Starbucks stay open until late at night but a donut or bagel shop might close at noon?
Why is advertising more important for the success of chains such as Toys “R” Us and Office Depot than for the corner barbershop?
Think of your favorite ads on television. Do you think that these ads have an effect on your spending? These ads are expensive; do you think they are a waste from society’s standpoint?
Product differentiation is a hallmark of monopolistic competition, and the text lists four sources of such differentiation: physical differences, prestige, location, and service. How do firms in the
As you know, perfect competition and monopolistic competition differ in important ways. Show your understanding of these differences by listing the following terms under either perfect
In what way is the use of advertising another example of Adam Smith’s “Invisible Hand,” according to which entrepreneurs pursuing their own best interest make consumers better off?
True or False:1. Monopolistic competition is a mixture of monopoly and perfect competition.2. All firms in monopolistically competitive industries earn economic profits in the long run.3. By
Multiple Choice Questions:1. Which of the following is not a characteristic of oligopoly?a. A few firms control most of the production and sale of a product.b. Firms in the industry make price and
Multiple Choice Questions:1. The kinked demand curve model illustratesa. How price rigidity could characterize some oligopoly firms, despite changing marginal costs.b. How price increases and price
Which of the following markets are oligopolistic?a. Cornb. Funeral servicesc. Airline traveld. Hamburgerse. Oilf. Breakfast cereals
Which of the following are characteristic of oligopolistic industries?a. A large number of firmsb. Few firmsc. A high degree of product differentiationd. High barriers to entrye. Free entry and
Suppose Farmer Smith from Kansas and Farmer Jones from Missouri agree to restrict their combined output of wheat in an attempt to increase the price and profits. How likely do you think the
Explain how the joint profit-maximizing price of colluding firms under oligopoly is determined. How about output?
Important differences exist between perfect competition and oligopoly. Show your understanding of these differences by listing the following terms under either perfect
One of the world’s most successful cartels has been the Central Selling Organization (CSO), which controls about threequarters of the world’s diamonds. This collusive oligopoly has kept diamond
The U.S. Justice Department has been worried that the nation’s four largest air carriers—Delta, Northwest, American, and United—use low prices to limit competition at the busiest
In the kinked demand model, what is assumed about rival responses to price increases? Price decreases? What does that imply about anticipated elasticities of demand as a result?
Why would someone consider how broadly or narrowly the relevant market is considered to be so critical to the results when HHI values are used to evaluate mergers?
Assume there are initially 10 firms, each with a 10 percent market share.a. What is the initial HHI?b. What will the HHI become if two firms merge?c. What will the HHI become if three firms merge?
Answer questions a–c on HHI.a. What would the HHI be for an industry made up of one firm with 30 percent of the market, and 14 firms, each with 5 percent of the market?b. What would the HHI be if
Are the following mergers horizontal, vertical, or conglomerate?a. Newsweek magazine and Time magazineb. Tyson Chicken and Popeye’s Chicken restaurantsc. CBS TV and Jerry Bruckheimer Productions
Two firms compete in the breakfast cereal industry producing Rice Krinkles and Wheat Krinkles cereal, respectively. Each manufacturer must decide whether to promote its product with a large or small
Suppose Pepsi is considering an ad campaign aimed at rival Coca-Cola. What is the dominant strategy if the payoff matrix is similar to the one shown in Exhibit inSection?
Suppose your professor announces that each student in your large lecture class who receives the highest score (no matter how high) on the take-home final exam will get an A in the course. The
The following payoff matrix shows the possible sentences that two suspects, who are arrested on suspicion of car theft, could receive. The suspects are interrogated separately and are unable to
Why are repeated games more likely to be cooperative than one-shot games?
Why might shirking on a team project in school be a dominant strategy, but not shirking on a team project at work?
True or False:1. Under oligopoly, individual firms produce only an infinitesimal share of total output.2. The auto industry is an example of oligopoly.3. Under oligopoly, as in perfect competition
True or False:1. By the year 2050 the moon travel business consists of three international firms that create the International Moon Cartel, which restricts output and raises prices. Because this
True or False:1. Horizontal, vertical, and conglomerate mergers all increase a firm’s market shares in the industries involved.2. For predatory pricing to work, a firm would have to be able to
True or False:1. All network externalities act to increase consumer demands for products.2. The area of communications often exhibits positive network externalities.3. The bandwagon effect can apply
Multiple Choice Questions:1. Which is not one of society’s major economic goals?a. Maintaining employment at high levelsb. Maintaining prices at a stable levelc. Maintaining a high rate of economic
Multiple Choice Questions:1. In Littletown, the population includes 1,000 people over the age of 16; 800 are in the labor force, and 600 are employed. The unemployment rate isa. 33 percent.b. 25
Multiple Choice Questions:1. A federal program aimed at retraining the unemployed workers of the declining auto and steel industries is designed to reduce which type of unemployment?a. Seasonalb.
Multiple Choice Questions:1. Inflation will be least harmful ifa. Interest rates are not adjusted accordingly when inflation occurs.b. Worker wages are set by long-term contracts.c. It is correctly
What would be the labor force participation rate if:a. The __________ population = 200 million, the labor force = 160 million, and employment = 140 million?b. The __________ population = 200 million,
Answer the following questions about unemployment:a. If a country has a noninstitutional population of 200 million and a labor force of 160 million, and 140 million people were employed, what is its
Which of the following individuals would economists consider unemployed?a. Sam looked for work for several weeks but has now given up his search and is going back to college.b. A 14-year-old wants to
Identify whether each of the following reflects seasonal, structural, frictional, or cyclical unemployment.a. A sales employee is laid off due to slow business after consumer spending falls.b. An
Which type of unemployment would be affected with the following changes? Would it go up or down?a. Increased employment benefitsb. Heavy snowfall in Minnesotac. Online job search becomes more
Answer the following questions about reasons for unemployment:a. In a severe recession, what would tend to happen to the number of people in each of the following categories?Job losers Job
a. What is the relationship between the natural rate of unemployment and frictional, structural, and cyclical unemployment?b. What would happen to both unemployment and the normal rate of
Unemployment benefits in many European countries tend to be both more generous and available for longer periods than those in the United States. What impact do you think this is likely to have on the
How can unions result in higher unemployment rates? How would the results differ for someone who wants to be employed in the union sector as compared with someone who currently has a job in the union
Answer the following questions about inflation:a. What would be the effect of unexpected inflation on each of the following?Retirees on fixed incomes Workers Debtors CreditorsShoe-leather costsMenu
Does anticipated inflation or unanticipated inflation discourage economic growth? Why?
Answer the following questions about the nominal and real interest rates:a. What would be the real interest rate if the nominal interest rate were 14 percent and the inflation rate were 10 percent?
You borrow money at a fixed rate of interest to finance your college education. If the rate of inflation unexpectedly slows down between the time you take out the loan and the time you begin paying
How does an adjustable rate mortgage agreement protect lenders against inflation? Who bears the inflation risk?
In 2000, a proposal was made in Santa Monica, California, to raise the minimum wage in the hotel and shopping district to a “living” wage of $10.69 per hour. Predict the effect of such
Calculate a price index for 2005, 2006, and 2007 using the following information about prices. Let the market basket consist of one pizza, two sodas, and three video rentals. Let the year 2005 be the
Indicate which of the following are true of the CPI and the GDPdeflator:
True or false:1. Economic growth means a growth in real, per capita total output over time.2. Economic growth is considered to be positive by all individuals.3. Other things being equal, relatively
True or false:1. People looking for full-time work who grudgingly settle for a part-time job are counted as employed, even though they are only “partly” employed.2. Some people working in the
True or false:1. Frictional unemployment, while not good in itself, is a by-product of a healthy phenomenon; and because it is short lived, it is not generally viewed as a serious problem.2.
True or False:1. At the natural rate of unemployment, the economy is producing its potential output.2. When the economy is experiencing cyclical unemployment, the unemployment rate is less than the
True or False:1. Menu costs and shoe-leather costs are modest, regardless of the rate of inflation.2. The real interest rate equals the nominal interest rate plus the inflation rate.3. When the
True or False:1. In periods of high unexpected inflation, the nominal interest rate can be high while the real interest rate is low or even negative.2. In a growing economy, real GDP will tend to
True or False:1. Since the development of the index of leading economic indicators, it has never failed to give some warning of an economic downturn.2. The lead time between a change in the index of
Multiple Choice Questions:1. GDP is defined as the?a. Value of all final goods and services produced in a country in a period of time.b. Value of all final goods produced in a country in a period of
Multiple Choice Questions:1. Investment includes?a. Fixed investment.b. Fixed investment plus government investment.c. Fixed investment plus additions to business inventories.d. Fixed investment plus
Multiple Choice Questions:1. Which of the following will be counted as part of this year’s U.S. GDP?a. Goods produced last year but not sold until this year.b. Goods produced this year by an
Multiple Choice Questions:1. The consumer price index?a. Takes government purchases into account, unlike the GDP deflator.b. Takes business investment purchases into account, unlike the GDP
Answer the following questions about GDP:a. What is the definition of GDP?b. Why does GDP measure only the final value of goods and services?c. Why does GDP measure only the value of goods and
Which of the following are included in GDP calculations?a. Cleaning services performed by Molly Maid Corporation.b. Lawn-mowing services performed by a neighborhood child.c. Drugs sold illegally on a
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