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Economics
Suppose that for every 1 percentage point increase (decrease) in GDP growth, automatic stabilizers1. Increase (decrease) tax revenues by $90 billion and2. Decrease (increase) transfer payments by $30
If automatic stabilizers increase the federal budget balance by $60 billion for every 1 percent increase in real GDP growth, what will happen to the federal budget balance if the economy falls into a
The following table presents hypothetical data on inflation, unemployment, and pollution associated with various levels of government expenditure and taxation. A government decision maker is trying
Suppose a lawyer can type faster than any secretary. Should the lawyer do her own typing?
If a nation exported much of its output but imported little, would it be better or worse off? How about the reverse-that is, exporting little but importing a lot?
Are "Buy American" provisions good for(a) U.S. consumers,(b) U.S. producers?
Why did solar panel installers object to tariffs on Chinese made solar panels (see the News Wire "Tariff Protection")?
How would each of these events affect the supply or demand for Japanese yen? 1. Stronger U.S. economic growth. 2. A decline in Japanese interest rates. 3. Higher inflation in the United States.
Is a stronger dollar good or bad for America? Explain.
Why might China want to keep the price of the Yuan low? Who suffers from this policy?
If another nation raises tariffs on U.S. products, should the United States retaliate with similar trade barriers? Who would gain? Who would lose?
Suppose the following table reflects the domestic supply and demand for Tshirts:1. Graph these market conditions and identify when there is an absence of trade (i) the market price, (ii) domestic
Using supply and demand, how would you illustrate the effect of a "Buy American" policy?
Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples. The production possibilities schedules in the table below describe their potential output in tons per
Suppose the two islands in Problem 2 agree that the terms of trade will be 1 ton of pineapples for 1 ton of pearls and that trade soon results in an exchange of 10 tons of pineapples for 10 tons of
What is the equilibrium euro price of the U.S. dollar1. In Figure 17.3?Figure 17.32. In Figure 17.4?Figure 17.43. Did the dollar appreciate or depreciate in Figure 17.4?
In what country is the U.S. dollar price of a Big Mac the highest with the following exchange rates? 1. 12,480 rupiah = $1 2. 0.86 euros = $1 3. 32.6 baht = $1 4. 6.21 yuan = $1
If a PlayStation 4 costs 40,000 yen in Japan, how much will it cost in U.S. dollars if the exchange rate is as follows? 1. 120 yen = $1 2. 1 yen = $0.00833 3. 100 yen = $1
By what percent did the dollar price of a euro fall between 2008 and 2015 (see the News Wire "Currency Appreciation")?
If an admission ticket to the Eiffel Tower cost 10 euros, what was the dollar price of the ticket in(a) 2008?(b) In 2015? (See the News Wire "Currency Appreciation.")
According to the News Wire "Import Quotas," what is the net U.S. job loss from sugar quotas?
Why is infrastructure essential to economic development?
Some firms seem to last forever. (For an extreme example, go to www.hbc.com.) In some industries, however, even the most effective firms may expect short lifetimes (e.g., lawn crews, Thai
How might a persistent global credit crisis affect the scale and scope of modern firms?
What was the role of the factor in the mid-19th century economy? Does such a role exist in the modern economy?
How would John Burrow's life have been different if he had access to the "Internet?" What if farmers and retailers also had access to the "Internet?"
What is throughput? Is throughput as important today as it was 100 years ago?
If nineteenth-century Americans had had the benefit of modern technology as they expanded westward, would Chicago, with its close access to the Mississippi River system, still have emerged as the
Two features of developing nations are an absence of strong contract law and limited transportation networks. How might these factors affect the vertical and horizontal boundaries of firms within
Fifteenth century Florence was the birthplace of the Renaissance, home to artists such as Donatello, Boticelli, and Michelangelo. Why did so many great artists emerge from just this one city-state?
The advent of professional managers was accompanied by skepticism regarding their trustworthiness and ethics in controlling large corporate assets on behalf of the shareholders. Today, this
There is considerable disagreement as to whether government regulation has largely positive or negative influences on economic growth. Compare and contrast the ways in which government involvement in
A firm produces two products, X and Y. The production technology displays the following costs, where C (i, j) represents the cost of producing i units of X and j units of Y: C (0, 50) = 100 C (5, 0)
In rapidly developing economies --- such as India and South Korea --- conglomerates are far more common than they are in the US and Western Europe. Use the BCG growth/share matrix to explain why this
The following is a quote from GE Medical Systems web site: "Growth Through Acquisition - Driving our innovative spirit at GE Medical Systems is the belief that great ideas come from anyone, anywhere,
"The theory of the market for corporate control cannot be true because it assumes that every individual shareholder is paying careful attention to the performance of management." Agree or disagree.
Many publicly traded companies are still controlled by their founders. Research shows that the share values of these companies often increase if the founder unexpectedly dies. Use the theory of the
Summarize the research evidence on diversification. Is the evidence consistent with economic theory?
Economies of scale are usually associated with the spreading of fixed costs, such as when a manufacturer builds a factory. But the spreading of fixed costs is also important for economies of scale
How does the globalization of the economy affect the division of labor? Can you give examples?
It is estimated that a firm contemplating entering the breakfast cereal market would need to invest $100 million to build a minimum efficient scale production plant (or about $10 million annually on
You are the manager of the "New Products" division of a firm considering a group of investment projects for the upcoming fiscal year. The CEO is interested in maximizing profits and wants to pursue
How does the digitization of books, movies and music affect inventory economies of scale?
American and European bricks-and-mortar retailing is increasingly becoming dominated by "hyper marts," enormous stores that sell groceries, household goods, hardware and other products under one
Explain why learning reduces the effective marginal cost of production. If firms set prices in proportion to their marginal costs, as suggested by the Economics Primer, how can learning firms ever
What is the dominant general manager logic? How is this consistent with the principles of scale economies? How is it inconsistent with these principles?
Explain why the make-or-buy decision is moot when contracts are complete.
Some contracts, such as those between municipalities and highway construction firms, are extremely long with terms spelled out in minute detail. Others, such as those between consulting firms and
Production requires coordination of many activities. Why does the make-or-buy decision depend critically on coordination of design attributes? What is the connection between your answer and
Suppose that Arnold Schwarzenegger (GAS) pays Besanko, Dranove, and Shanley (BDS) an advance of $5 million to write the script to Incomplete Contract, a movie version of their immensely popular text
In many modern U.S. industries the following patterns seem to hold (please describe what factors might explain these patterns): a. Small firms are more likely to outsource production of inputs than
Chapter 1 discussed the history of the vertically integrated corporate giants of the early 20th century. Use concepts in this chapter to explain why firms facing the following conditions are more
A manufacturer of pencils contemplates backward integration into production of rape seed oil, a key ingredient in manufacturing the rubber-like material (called factice) that forms the eraser. Rape
Matilda Bottlers bottles and distributes wines and spirits in Australia. Big Gator is a conglomerate that manufactures, among other things, a popular lager beer. By virtue of a lifetime contract,
What is the "Chicago School" argument against concerns that vertical integration is anticompetitive? Under what conditions might this argument be wrong?
Canon has manufactured high quality camera since it was founded in 1933. SLR-cameras (i.e., not point and shoot cameras) are purchased in two parts: the body and the lenses. Photographers who want a
In each of the following situations why are firms likely to benefit from vertical integration? (a) A grain elevator is located at the terminus of a rail line. (b) A manufacturer of a product with a
Consider the following pairs of situations. In each pair, which situation is more likely to be susceptible to coordination problems? a. Maintenance of corporate landscaping by a gardening company
Universities tend to be highly integrated-many departments all belong to the same organization. There is not a technical reason why a university could not consist of freestanding departments linked
"Influence activities happen in everyday life, in households, schools, and even amongst close friends." Can you give an example to each statement?
What is the property rights theory of the firm? Is this theory consistent with the theories of vertical integration described in Chapter 3?
Most people rely on implicit costs in their everyday lives. Can you give some examples? What alternatives did you have to achieve the desire outcome?
Suppose you observed a hostile takeover and that the aftermath of the deal included plant closings, layoffs, and reduced compensation for some remaining workers in the acquired firm. What would you
What does the keiretsu system have in common with traditional strategic alliances and joint ventures? What are some of the differences?
How are business groups like Tata similar to traditional diversified firms like General Electric? How are they different?
The following is an excerpt from an actual strategic plan (company and product names have been changed to protect the innocent): Acme's primary raw material is PVC sheet that is produced by three
Use property rights theory to explain why stockbrokers are permitted to keep their client lists (i.e., continue to contact and do business with clients) if they are dismissed from their jobs and find
"Integrated firms are more efficient than independent firms if the central office is more efficient than the courts." Explain this statement. To what extent do you agree?
How is your ownership of Economics of Strategy path dependent? To what extent does this path dependency provide you with a unique opportunity to exploit what you learned from this book?
Why is the "technical efficiency" line in Figure 4.1 above the x-axis? Why does the "agency efficiency" line cross the x-axis?
How might globalization and advances in information technology affect the tradeoffs between technical and agency efficiency?
Is the following statement correct? "Double marginalization helps firms because it enables them to raise prices."
Analysts often array strategic alliances and joint ventures on a continuum that begins with "using the market" and ends with "full integration". Do you agree that these fall along a natural continuum?
How are franchising and tapered integration similar? How do these strategies differ?
Why are the concepts of own and cross-price elasticity's of demand essential to competitor identification and market definition?
"The only way to succeed in a market with homogeneous products is to produce more efficiently than most firms." Comment. Does this imply that efficiency is less important in oligopoly and monopoly
In what ways are monopolistically competitive markets "monopolistic?" In what ways are they "competitive?"
Adam and Catherine are choosing between two ice cream shops, Icy and Frosty, located at either end of a 1-mile long beach. Adam is standing in front of Icy, while Catherine is standing in front of
The large turbine generator industry is a duopoly. The two firms, GE and Westinghouse, compete through Cournot quantity setting competition. The demand curve for the industry is P=100-Q, where P is
The dancing machine industry is a duopoly. The two firms, Chuckie B Corp. and Gene Gene Dancing Machines, compete through Cournot quantity-setting competition. The demand curve for the industry is P
Consider a market with two horizontally differentiated firms, X and Y. Each has a constant marginal cost of $20. Demand functions are:Qx = 100 - 2Px + 1PyQy = 100 - 2Py + 1PxCalculate the Bertrand
How do you think the equilibrium in question 15 will change if cross-price elasticity's of demand increase? How would you alter the equation to show such an increase? Can you compute the new
In a recent antitrust case, it was necessary to determine whether certain elite schools (mainly the Ivy League schools and MIT) constituted a separate market. How would you go about identifying the
How would you characterize the nature of competition in the restaurant industry? Are there submarkets with distinct competitive pressures? Are there important substitutes that constrain pricing?
How does industry-level price elasticity of demand shape the opportunities for making profit in an industry? How does firm-level price elasticity of demand shape the opportunities for making profit
What is the "revenue destruction effect"? As the number of Cournot competitors in a market increases, the price generally falls. What does this have to do with the revenue destruction effect? Smaller
How does the calculation of demand responsiveness in Linesville change if customers rent two videos at a time? What intuition can you draw from this about the magnitude of price competition in
Numerous studies have shown that there is usually a systematic relationship between concentration and price. What is this relationship? Offer two brief explanations for this relationship.
The relationship described in question 7 does not always appear to hold. What factors, besides the number of firms in the market, might affect margins?
The following are the approximate market shares of different brands of soft drinks during the 1980s:Coke-40%Pepsi-30%7-Up-10%Dr. Pepper-10%All other brands-10%a. Compute the Herfindahl for the soft
Researchers have found that industries with high entry rates tended to also have high exit rates. Can you explain this finding? What does this imply for pricing strategies of incumbent firms?
In most models of entry deterrence, the incumbent engages in predatory practices that harm a potential entrant. Can these models be reversed, so that the entrant engages in predatory practices? If so
Suppose that a hospital monopolizes the local market for heart surgery, charging $10,000 per procedure. The hospital does 1000 heart surgeries annually and the cost of heart surgery is $5000 per
"Judo economics suggests that economies of scale are useless at best." Do you agree or disagree?
Recall the discussion of monopolistic competition in Chapter 8. Suppose that an entrepreneur considered opening a video store along Straight Street in Linesville. Where should the entrepreneur
Consider a firm selling two products, A and B, that substitute for each other. Suppose that an entrant introduces a product that is identical to product A. What factors do you think will affect (1)
Dunne, Roberts, and Samuelson examined manufacturing industries in the 1960s to 1980s. Do you think that entry and exit rates have changed in the past two decades? Do you think that entry and exit
"All else equal, an incumbent would prefer blockaded entry to deter able entry." Comment.
Under what conditions do economies of scale serve as an entry barrier? Do the same conditions apply to learning curves?
Under what conditions can a firm prosper by gaining control of essential resources?
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