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microeconomics

Questions and Answers of Microeconomics

You’re the manager of a firm that has constant marginal cost of $6. Fixed cost is zero. The market structure is monopolistically competitive. You’re faced with the following demand curve:a.
Manufacturers often pay “slotting fees,” payments to retailers to provide their product prime shelf space.These fees range from $25,000 for one item in one store to $3 million for a chain of
Both a perfect competitor and a monopolistic competitor choose output where MC = MR, and neither makes a profit in the long run. How is it, then, that the monopolistic competitor produces less than a
Austrian economists observe that most lasting monopolies are the result of government and that any attempt to make government strong enough to control monopolies may result in an abuse of government
Do men have a monopoly over the best jobs in the United States? If so, how is that monopoly protected? (Feminist)
When analyzing the conduct of “modern” industry, Thorstein Veblen argued that captains of industry succeeded by eliminating their rivals through predatory exploitation and thus sabotaging
Large pharmaceutical firms use monopoly power granted by patents to sell drugs at prices that far exceed marginal costs. Evidence from countries without effective patent protections suggests that
The original language for patent law comes from Thomas Jefferson. He wrote that patents can be obtained for “any new and useful art, machine, manufacture, or composition of matter, or any new or
Firms in a monopolistically competitive market depend on differentiating their products.a. How do firms differentiate their products?b. Aside from commodities such as gold and grain, how many
Any large grocery store carries at least seven different kinds of corn chips—baked, fried, salsa-flavored, white, yellow, blue, and lime-flavored.a. When is product differentiation real and when is
Explain the effects on college education of the development of a teaching machine that you plug into a student’s brain and that makes the student understand everything.How would your answer differ
Assume your city government has been contracting with a single garbage collection firm that has been granted an exclusive franchise, the sole right, to pick up trash within the entire city limits.
When you buy a cheap computer printer, you can sometimes get it for free after the rebate. Why would a firm sell you something for a zero price? (The answer isn’t that it wants to be nice.)
Oftentimes, gas stations a couple of miles apart will differ in price by as much as 5 to 10 cents per gallon because oil companies use a pricing system called zone pricing. For example, gas is sold
Most magazines offer enormous subscription deals for college students. For example, Time magazine offered a one-year subscription for $29.95, when the cover price was $3.95 per issue. This was an 85
Copyrights provide authors with a monopoly.a. What effect would eliminating copyrights have on the price and output of textbooks?b. Should copyrights be eliminated?
Colleges give financial aid to certain students. Is this price discrimination? If so, should it be against the law?
A best-selling horror book, Duma Key by Stephen King, was sold in hardback for $28 when it was first released.One year later, the publisher issued a softcover edition for$9.99. What accounts for the
Does the product differentiation in monopolistic competition make us better or worse off? Why?
Why should you study rather than doodle?
In Table 14-1, explain why 4 is the profit-maximizing output. TABLE 14-1 Monopolistic Profit Maximization (1) (2) (3) (4) (5) (6) Total Marginal Total Marginal Quantity Price Revenue Revenue Cost
In the graph below, indicate the monopolist’s profit-maximizing level of output and the price it would charge. Price Marginal Demand Quantity The general rule that any firm must follow to maximize
Why does a monopolist produce less output than would perfectly competitive firms in the same industry?
Indicate the profit that the monopolist shown in the graph below earns. Price MC ATC Quantity Demand
Why is area C in Figure 14-5 not considered a loss to society from monopoly? PM Pc Price 0 Marginal cost FIGURE 14-5 The Welfare Loss from Monopoly The welfare loss from a monopoly is repre- sented
Why does a price-discriminating monopolist make a higher profit than a normal monopolist?
Why is the competitive price impossible for an industry that exhibits strong economies of scale?
Why do monopolistically competitive firms advertise while perfect competitors do not?
How does the equilibrium for a monopoly differ from that for a monopolistic competitor?
What distinguishes oligopoly from monopolistic competition?
Is an oligopolist more or less likely to engage in strategic decision making compared to a monopolistic competitor?
What is the difference between the contestable market model and the cartel model of oligopoly?
How are the contestable market model and the cartel model of oligopoly related?
Robert Crandell, former CEO of American Airlines, phoned the former Braniff Airways CEO and said, “Raise your fares 20 percent and I’ll raise mine the next morning.”a. Why would he do this?b.
Kellogg’s, which controls 32 percent of the breakfast cereal market, cut the prices of some of its best-selling brands of cereal to regain market share lost to Post, which controls 20 percent of
At one time Mattel proposed acquiring Fisher-Price for$1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two
Which industry is more highly concentrated: one with a Herfindahl index of 1,200 or one with a four-firm concentration ratio of 55 percent?
The pizza market is divided as follows:a. How would you describe its market structure?b. What is the approximate Herfindahl index?c. What is the four-firm concentration ratio? Pizza Hut 20.7%
If you were an economist for a firm that wanted to merge, would you argue that the three-digit or five-digit NAICS industry is the relevant market? Why?
Suppose you are an economist for Mattel, manufacturer of the Barbie doll, which was making an unsolicited bid to take over Hasbro, manufacturer of the G.I. Joe doll.a. Would you argue that the
What is the difference between judgment by performance and judgment by structure?
Is a contestable model or cartel model more likely to judge an industry by performance? Explain your answer.
Distinguish the basis of judgment for the Standard Oil and the ALCOA cases.
Demonstrate graphically how regulating the price of a monopolist can both increase quantity and decrease price.(Difficult)a. Why did the regulation have the effect it did?b. How relevant to the real
What are three reasons fewer antitrust cases have been brought before the courts?
How do platform businesses change the nature of antitrust policy?
In the past two chapters you have learned much about market power: how it is used, the efficiency implications, and how society has responded. Yet this power remains, albeit minimally checked from
Alexis de Tocqueville once stated, “The Americans have applied to the sexes the great principle of political economy which governs the manufacturers of our age, by carefully dividing the duties of
In which market structure would women likely be most successful? Why? (Feminist)
Does market structure determine firm behavior or does firm behavior determine market structure?(Post-Keynesian)
A recent study of mergers and acquisitions found that 83 percent of the deals achieved did not result in positive shareholder returns. Some resulted in losses.a. If such mergers are not especially
A firm is convinced that if it lowers its price, no other firm in the industry will change price; however, it believes that if it raises its price, some other firms will match its increase, making
Private colleges of the same caliber generally charge roughly the same tuition. Would you characterize these colleges as a cartel type of oligopoly?
When Mattel proposed acquiring Fisher-Price, the infant/preschool toy market four-firm concentration ratio was 72 percent. With 8 percent of the market, Mattel was the fourth-largest firm in that
How would the U.S. economy likely differ today if Standard Oil had not been broken up?
American Airlines offered a 50-percent-off sale and cut fares. Continental Airlines and Northwest Airlines sued American Airlines over this action.a. What was the likely basis of the suit?b. How does
You’re working at the Department of Justice. Ms. Ecofame has just developed a new index, the Ecofame index, which she argues is preferable to the Herfindahl index.The Ecofame index is calculated by
What did Adam Smith mean when he wrote, “Seldom do businessmen of the same trade get together but that it results in some detriment to the general public”?
Your study partner, Jean, has just said that monopolistic competitors use strategic decision making. How would you respond?
Why is it difficult for firms in an industry to maintain a cartel?
Is the demand curve as perceived by an oligopolist likely to be more or less elastic for a price increase or a price decrease?
What are the two extremes an oligopoly model can take?
Which would have more output:the two-digit industry 21 or the four-digit industry 2111? Explain your reasoning.
If the four-firm concentration ratio of an industry is 60 percent, what is the highest Herfindahl index that industry could have? What is the lowest?
The Herfindahl index is 1,500.Using a contestable market approach, what would you conclude about this industry?
The Herfindahl index is 1,500.Using a structural analysis of markets approach, what would you conclude about this industry?
How was market competitiveness judged in the Standard Oil and ALCOA cases?
True or false? Google exploits its monopoly position by charging high prices to consumers.
True or false? It is obvious that all for-profit businesses in the United States will maximize profit.Why?
Describe the monitoring problem. How does an incentive-compatible contract address the monitoring problem?
Define X-inefficiency. Can a perfect competitor be X-inefficient?Explain why or why not.
Some analysts have argued that competition will eliminate X-inefficiency from firms. Will it? Why?
True or false? If it were easier for consumers to collude than for suppliers to collude, there would often be shortages of goods. Why?
Demonstrate graphically the net gain to producers and the net loss to consumers if suppliers are able to restrict their output to Qr in the accompanying graph. Demonstrate the net deadweight loss to
Up to how much is the monopolist depicted in the accompanying graph willing to spend to protect its market position?Demonstrate your answer graphically. Price MR Demand 0 Quantity Marginal cost
True or false? Platform monopolies should be broken up to improve competition. Why?
True or false? Monopolies are bad; patents give firms monopoly;therefore, patents are bad. Why?
Taking into consideration changing technologies, why might the competitive process not lead to the most efficient outcome?
How do network externalities increase the winner-take-all nature of a market?
True or false? Technically competent firms will succeed.Why?
Some economists have compared managers to politicians.a. How do the incentives facing managers resemble those of politicians?b. How do they differ?c. What does your answer say about the relative
Think of the pay of various groups in society.a. How does the compensation awarded to heads of religious organizations compare to the salary of CEOs in profit-making organizations?b. What is the
How many of the 10 highest-paid CEOs are women?(To find out, you can go to the paywatch source, https://aflcio.org/paywatch, on the web.) What is the likely reason for your finding? (Feminist)
While some assets, such as forests, can provide benefits to society in perpetuity, some firms see forests as consumable assets. One example occurred when corporate raider James Goldsmith forcibly
Because the future is inherently uncertain, firms often follow“rules of thumb” to make decisions such as how much capital (factories and machinery for production)to buy and how to price their
Large corporations spend tremendous sums in an effort to influence public policy. Some corporations fund “citizens’”groups to push policies that the corporations want. Giant drug companies fund
Airlines and hotels have many frequent-flyer and frequent-visitor programs in which individuals who fly the airline or stay at the hotel receive bonuses that are the equivalent of discounts.a. Give
Are managers and high-level company officials paid high salaries because they’re worth it to the firm, or because they’re simply extracting profit from the company to give to themselves? How
True or false? Nonprofit colleges must be operating relatively efficiently. Otherwise for-profit colleges would force existing colleges out of business. Why?
Author Charles Murray has argued that museums actually inhibit rather than foster the appreciation of art. He points out that the technology exists to make essentially“perfect”copies of any major
Find a prescription drug that you, someone in your family, or a friend normally takes.a. What is the price you (they) pay for it?b. What is the lowest online U.S. price for that drug?(Costco is a
In the early 2000s, the wholesale price of the generic drug fluoxetine (the generic for Prozac)was $3.60 per 100.a. Given that the cost of dispensing this drug was about$5 to $10 per prescription,
Why would a company want to sacrifice short-run profits to establish market position?
The title of an article in The Wall Street Journal was“Pricing of Products Is Still an Art, Often Having Little Link to Costs.” In the article, the following cases were cited:• Vodka pricing:
Soft-drink companies pay universities for the exclusive“pouring rights” to sell their products on campus. In a recent deal, UCLA signed a contract with Pepsi for$1.5 million per year limiting
Monsanto Corporation lost its U.S. patent protection for its highly successful herbicide Roundup in the year 2000.What do you suppose was Monsanto’s strategy for Roundup in the short run? In the
One of the things that is slowing the development of nanotechnology is the legal morass of patents that anyone working with new ideas must deal with. Some have argued that the government should give
What is meant by the phrase“competition is for losers”?
Why isn’t profit maximization an especially good assumption to make about real-world firms?
Why would most economists be concerned about third-party-payer systems in which the consumer and the payer are different?

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