7:07 23 econ 102 HW10 FS22.pdf Q Penn State Abington ECON102-Fall 2022 Homework Assignment #10 (For fun only): Ch. 1 1 (p.232-233) #1-4; NOTE: (i) and (ii) below might not be covered in class until T. November 15 (i) What are the characteristics of a contestable market? Why might a firm in a contestable market set a price that is below the price set by a comparable firm in an oligopoly market? Explain. (ii) Describe how a firm may be charged with predatory pricing. List all three conditions that need to be met. When one sees businesses going broke (e.g. small gas stations, mom and pop stores), is it a sure sign that the firms remaining in business have practiced 'predatory pricing'? Explain your answer. (To be turned in): The following three questions are due in class on Tuesday November 15. 1. Your Chemistry major roommate has discovered a secret formula that lets people do an hour's worth of study in 5 minutes! She now has a monopoly power on her formula due to the patent she acquired on the formula. She has also obtained new cost figures from her lab production people and market information (D and MR) from her marketing people. These are shown in the diagram below. S/unit ATC MC 90 40 30 MR 130 140 150 160 a) She's not sure what to do. You suggest that she maximize her profits. Indicate the quantity that would maximize profits for her. SHOW how you get your answer. b) What is the price that results? EXPLAIN how you get your answer. c) What would be the maximized profits (in dollar amount)? SHOW your calculation. d) She expresses her concerns about social desirability and efficiency and would like to know if she could be selling the pills and be socially efficient at the same time. Indicate the amount of pills which would make the market socially efficient/desirable. What is the price of each pill in this case? e) From part d), would your roommate be making any positive profits? How do you know? () She doesn't quite understand this concept (she's a chemistry major!) and how the society loses if she goes ahead with your suggestion from part (a). On the diagram, show the area of social loss (deadweight loss) for her and provide explanation. g) Explain briefly why the profit-maximizing monopolist/chemist in part a) is socially inefficient/undesirable. Is it because of the profit she earns? Is it because of her 'evil intent'? 2. Could a market currently with only ONE producer maintain its 'monopoly' power when there are no entry restrictions? Explain. How do entry restrictions arise in reality? Give a few examples. 3. Does the existence of profits harm society? If so, explain why. If not, what social functions does the existence of profits serve in a free market environment (i.e. how does the existence of profit help improve our society well-being)? Does it serve those same social functions in a monopolistic situation? Explain. Any questions or concerns, please send me an email. Enjoy your weekend and good luck studying!! Oak 5 O= Dashboard Calendar To Do Notifications Inbox