1. Assume an industry is composed of the following eight firms.

Company…………………………….Market Share

Firm A…………………………………..30 percent

Firm B…………………………………..25 percent

Firm C…………………………………..15 percent

Firm D…………………………………..10 percent

Firm E……………………………………7 percent

Firm F……………………………………6 percent

Firm G…………………………………...4 percent

Firm H……………………………………3 percent

a. If Firms B and C propose a merge, would the Antitrust Division likely challenge the merger? Why or why not?

b. If firms G and H propose a merger, would the Antitrust Division likely challenge the merger? Why or why not?

2. The widget Industry in Any town is a monopoly, controlled by Widget Corp. Its demand curve for the local market is given by

P = 800 – 20 W

Where W represents the number of widgets sold per period.

The total cost function (including opportunity or implicit costs) for Widget Corp. is

TC = 300 + 500 W + 10 W2

a. Assuming the industry is unregulated, what are the equilibrium price and output and economic profits earned by Widget Corp.?

b. If the industry is regulated and the regulatory authority forces Widget Corp. to earn only a normal return on investment (which is included in its cost function), what is the resulting equilibrium price and quantity?

c. What happens to consumer surplus? What happens to the economic profits earned by Widget Corp.?

3. Discuss the various ways governments can handle externalities, such as noise from a local airport or a barking dog or building of commercial office space or an industrial building in a residential area? How does the assignment of property rights affect the outcome? Under what circumstances would a socially optimal solution arise without any government intervention? Under what circumstances would government intervention likely move the outcome closer to a socially optimal solution?

Answer rating: 100% (QA)

1 a We need to use the HHI to ascertain if action is required Initial HHI 302 252 152 10232 1960 after merger HHI 302 402 102 32 2710 Since the change ... View the full answer