1.RB, Inc., is a wholesaler specializing in dry foods, such as rice and dry beans. Assume that these dry goods are all considered inferior goods. RB, Inc.'s manager is troubled by a recent article in The Wall Street Journal that says a recession is imminent and that income will fall by 3 percent over the next year. What do you think is likely to happen to the equilibrium price of the products RB, Inc., sells? You have to explain what is expected to happen to demand and/or supply and therefore to the equilibrium price.

2. How does globalization (buying parts from all over the world and selling to consumers all over the world) allow firms to enjoy economies of scale they could not benefit from even 30 years ago? Please give an explanation.

3. In Tuna, Texas, the retail gasoline market consists of six firms. Firm 1 has 35 percent of the market, Firm 2 has 25 percent, and the remaining firms have 10 percent each.

(a) What is the four-firm concentration ratio for this industry? Please show your calculations.

(b) What is the HHI? Please show your calculations.

(c) If Firm 1 and Firm 2 merged, what would be the four-firm concentration ratio for the industry after the merger? Please show your calculations.

(d) If the two smallest firms in the industry merged, what would be the four-firm concentration ratio after the merger? Please show your calculations. When answering (d) you should assume that the merger in (c) has not taken place.

4.Manufacturers of laundry detergent and dishwashing soap reinvest a relatively large percentage of their sales revenues on advertising campaigns. Most of these advertisements that appear on television stress the fact that their product is "New and Improved." Why? Please give an explanation and include a discussion of the type of market (perfect competition, monopoly, monopolistic competition, oligopoly) this might be.

5.The following is a one shot game between you and your rival. The numbers are in millions of dollars.

Your Rival

Advertise Do Not Advertise

Advertise (5,5) (10,3)

You

Do Not (1,3) (2,4)

Advertise

(a) Do you have a dominant strategy? Please explain.

(b) Does your rival have a dominant strategy? Please explain.

(c) What is the Nash equilibrium for the one-shot game? Please explain.

(d) How much would you be willing to bribe your rival not to advertise?Please explain.

6.Three consumers who want to buy a new car have the following valuations for dealer options:

Air Conditioner Power Brakes

Consumer 1 $1,000 $500

Consumer 2 $800 $300

Consumer 3 $100 $800

(a) Assuming costs are zero, how much would the dealer make if it individually priced power brakes at $800, individually priced air conditioners at $200, and sold the bundle for $1,300? Your explanation must include who buys the items at the offered price.

(b) Assuming costs are zero, how much would the dealer make if it individually priced power brakes at $800, individually priced air conditioners at $200, and sold the bundle for $900? Your explanation must include who buys the items at the offered price.

(c) Assuming costs are zero, how much would the dealer make if it individually priced power brakes at $600, individually priced air conditioners at $600, and sold the bundle for $1000? Your explanation must include who buys the items at the offered price.

7. Suppose a chemical company was fined for violating certain anti-pollution laws. As the spokesperson for the Environmental Protection Agency (the government agency that imposed those fines), how would you explain the economic reasons for these actions to angry customers of this company who will now be forced to pay a higher price for the firm's product? Your explanation should include how the fine reduces costs for consumers.