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Economics
Bleyer Industries Inc., the only U.S. manufacturer of plastic Easter eggs, once manufactured 250 million eggs each year. However, imports from China cut into its business. In 2005, Bleyer filed for
As of 2012, the pharmaceutical companies Abbott Laboratories, AstraZeneca, Aventis Pharmaceuticals, Bristol-Myers Squibb Company, Eli Lilly, GlaxoSmithKline, Janssen, Johnson & Johnson, Novartis,
Many colleges provide students from low-income families with scholarships, subsidized loans, and other programs so that they pay lower tuitions than students from high-income families? Explain why
The 2002 production run of 25,000 new Thunderbirds included only 2,000 cars for Canada. Yet potential buyers besieged Canadian Ford dealers. Many hoped to make a quick profit by reselling the cars in
See the Application "Google Uses Bidding for Ads to Price Discriminate," which discusses how advertisers on Google's Web site bid for the right for their ads to be posted when people search for
How would the analysis in Solved Problem 12.2 change if m = 7 or if m = 4? (Where m = 4, the marginal cost curve crosses the MR curve three times-if we include the vertical section. The single-price
A monopoly sells to n1 consumers in Country 1 and n2 in Country 2, where each person in Country 1 has a constant elasticity demand function of q1 = pε1 and every person in Country 2 has a demand
Show that the equilibrium elasticities in the two countries must be equal in Solved Problem 12.3?
A monopoly sells in two countries, and resale between the countries is impossible. The demand curves in the two countries are p1 = 100 - Q1 and p2 = 120 - 2Q2. The monopoly's marginal cost is m = 30.
Hershey Park sells tickets at the gate and at local municipal offices. There are two groups of people. Suppose that the demand function for people who purchase tickets at the gate is QG = 10,000 -
Universal Studios sold the Mamma Mia! DVD around the world. Universal charged $21.40 in Canada and $32 in Japan-more than the $20 it charged in the United States. Given that Universal had a constant
Warner Home Entertainment sold the Harry Potter and the Prisoner of Azkaban two-DVD movie set in China for about $3, which was only one-fifth the U.S. price, and sold about 100,000 units. The price
A monopoly sells its good in the United States, where the elasticity of demand is -2, and in Japan, where the elasticity of demand is -5. Its marginal cost is 10. At what price does the monopoly sell
In panel b of Figure 12.4, the single-price monopoly faces a demand curve of p = 90 - Q and a constant marginal (and average) cost of m = $30. Find the profit-maximizing quantity (or price) using
Knoebels Amusement Park in Elysburg, Pennsylvania, charges an access fee, ℒ, to enter its Crystal Pool. It also charges p per trip down the pool's water slides. Suppose that 400 teenagers visit the
A monopoly sells two products, of which consumers want only one. Assuming that it can prevent resale, can the monopoly increase its profit by bundling them, forcing consumers to buy both goods?
The publisher Elsevier uses mixed-bundling pricing strategy. The publisher sells a university access to a bundle of 930 of its journals for $1.7 million for one year. It also offers the journals
Show how a monopoly would solve for its optimal price and advertising level if it sets price instead of quantity?
The demand a monopoly faces is ( = 100 - Q + A0.5, Where Q is its quantity, p is its price, and A is its level of advertising. Its marginal cost of production is 10, and its cost of a unit of
What is the monopoly's profit-maximizing output, Q, and level of advertising, A, if it faces a demand curve of ( = a - bQ + cAα, its constant marginal cost of producing output is m, and the cost of
For every dollar spent on advertising pharmaceuticals, revenue increases by about $4.20 (CNN, December 17, 2004). If this number is accurate and the firms are operating rationally, what (if anything)
In the Challenge Solution, did the sales method achieve the same group price discrimination outcome that would be achieved if Heinz could set separate prices for loyal customers and for switchers?
In the battle of the sexes game, the husband likes to go to the mountains on vacation, and the wife prefers the ocean, but they both prefer to take their vacations together.What are the Nash
Suppose that Panasonic and Zenith are the only two firms that can produce a new type of 3D TV. The payoff matrix shows the firms' profits (in millions of dollars):a. If both firms move
Two guys (suffering from testosterone poisoning) engage in the game of chicken. They drive toward each other in the middle of a road. As they approach the impact point, each has the option of
Modify the payoff matrix in the game of chicken in Exercise 1.13 so that the payoff is -2 if neither driver swerves. How does the equilibrium change?
In the novel and film The Princess Bride, the villain Vizzini kidnaps the princess. In an attempt to rescue her, the hero, Westley, challenges Vizzini to a battle of wits. Consider this variation on
The 100-meter Olympic gold medalist and the 200- meter Olympic gold medalist have agreed to a 150- meter duel. Before the race, each athlete decides whether to improve his performance by taking
Acura and Volvo offer warranties on their automobiles, where wA is the number of years of an Acura warranty and wV is the number of years of a Volvo warranty. The revenue for Firm i, i = A for Acura
Two firms must simultaneously decide which quality to manufacture. The profit matrix (in tens of thousands of euros) isIdentify all the Nash equilibria in this game?
Suppose Procter & Gamble (PG) and Johnson & Johnson (JNJ) are simultaneously considering new advertising campaigns. Each firm may choose a high, medium, or low level of advertising. What are
The Wall Street Journal (Lippman, John, "The Producers: 'The Terminator' Is Back," March 8, 2002, A1) reported that Warner Brothers agreed to pay $50 million for its U.S. distribution rights, plus an
What is the mixed-strategy Nash equilibrium for the game in Exercise 1.7?
From the ninth century BC until the proliferation of gunpowder in the fifteenth century AD , the ultimate weapon of mass destruction was the catapult (Wilford, John Noble, "How Catapults Married
In 2007, Italy announced that an Italian journalist who had been held hostage for 15 days by the Taliban in Afghanistan had been ransomed for five Taliban prisoners. Governments in many nations
In Solved Problem 13.2, suppose that Mimi can move first. What are the equilibria, and why? Now repeat your analysis if Jeff can move first.
Draw a game tree that represents the ultimatum game in which the proposer is a first mover who decides how much to offer a responder and the responder then decides to accept or reject the offer. The
The European Union fined Sotheby's auction house more than €20 million for operating (along with rival auction house Christie's) a price-fixing cartel (see "The Art of Price Fixing" in MyEconLab,
The application "Deadweight Losses in the Food and Tobacco Industries" shows that the deadweight loss as a fraction of sales varies substantially across industries. One possible explanation is that
The viatical settlement industry enables terminally ill consumers, typically HIV patients, to borrow against equity in their existing life insurance contracts to finance their consumption and medical
Graph the best-response curve of the second firm in Solved Problem 14.1 if its marginal cost is m and if it is m + x. Add the first firm's best-response curve and show how the Nash-Cournot
An incumbent firm, Firm 1, faces a potential entrant, Firm 2, that has a lower marginal cost. The market demand curve is p = 120 - q1 - q2. Firm 1 has a constant marginal cost of $20, while Firm 2's
In a Nash-Cournot equilibrium, each of the n firms faces a constant marginal cost m, the inverse market demand function is ( = a - bQ, and the government assesses a specific tax of ( per unit. What
In 2005, the prices for 36 prescription painkillers shot up as much as 15% after Merck yanked its once-popular arthritis drug Vioxx from the market due to fears that it caused heart problems ("Prices
Consider the Cournot model with n firms. The inverse linear market demand function is ( = a - bQ. Each of the n identical firms has the same cost function C(qi) = Aqi + 1/2 Bqi2, where a > A. In
Duopoly quantity-setting firms face the market demand ( = 150 - q1 - q2. Each firm has a marginal cost of $60 per unit. a. What is the Nash-Cournot equilibrium? b. What is the Stackelberg equilibrium
Determine the Stackelberg equilibrium with one leader firm and two follower firms if the market demand curve is linear and each firm faces a constant marginal cost, m, and no fixed cost?
Show the effect of a subsidy on Firm 1's best response function in Solved Problem 14.3 if the firm faces a general demand function p(Q)?
Two firms, each in a different country, sell homogeneous output in a third country. Government 1 subsidizes its domestic firm by s per unit. The other government does not react. In the absence of
What happens to the homogeneous-good Nash- Bertrand equilibrium price if the number of firms increases? Why?
Will price be lower if duopoly firms set price or if they set quantity? Under what conditions can you give a definitive answer to this question?
Solve for the Nash-Bertrand equilibrium for the firms described in Exercise 5.3 if both firms have a marginal cost of $0 per unit?
In the Coke and Pepsi example, what is the effect of a specific tax, (, on the equilibrium prices? (What does the tax do to the firm's marginal cost? You do not have to use math to provide a
At a busy intersection on Route 309 in Quakertown, Pennsylvania, the convenience store and gasoline station, Wawa, competes with the service and gasoline station, Fred's Sunoco. In the Nash-Bertrand
In February 2005, the U.S. Federal Trade Commission (FTC) went to court to undo the January 2000 takeover of Highland Park Hospital by Evanston Northwestern Healthcare Corp. The FTC accused Evanston
Firms in some industries with a small number of competitors earn normal economic profit. The Wall Street Journal (Gomes, Lee, "Competition Lives On in Just One PC Sector," March 17, 2003, B1) reports
In the monopolistically competitive airlines model, what is the equilibrium if firms face no fixed costs?
Does an oligopoly or a monopolistically competitive firm have a supply curve? Why or why not?
Show that a monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at which the average
In Solved Problem 14.4, what fixed cost would result in four firms operating in the monopolistically competitive equilibrium? What are the equilibrium quantities and prices?
In the Challenge Solution's mathematical model, how much does Firm 1's best-response curve shift as the subsidy, s, increases?
Using the Challenge Solution's mathematical model, how much does Firm 1's profit (ignoring the subsidy) change as the subsidy, s, increases?
A monopoly with a Cobb-Douglas production function, Q = (L( + K()1/(, faces a constant elasticity demand curve. What is its marginal revenue product of labor?
How does a monopoly's demand for labor shift if a second firm enters its output market and the result is a Cournot duopoly equilibrium?
Does a shift in the supply curve of labor have a greater effect on wages if the output market is competitive or if it is monopolistic? Explain.
What is a monopoly's demand for labor if it uses a fixed-proportions production function in which each unit of output takes one unit of labor and one unit of capital?
In Solved Problem 15.2, show how the results change if the share of workers killed by the Black Death was one-half?
An economic consultant explaining the effect on labor demand of increasing health care costs, interviewed for the Wall Street Journal's Capital column (Wessel, David, "Health-Care Costs Blamed for
If a local government starts collecting an ad valorem tax of α on the revenue of a competitive firm (and all other firms are located outside this jurisdiction), what happens to the firm's demand
How does a fall in the rental price of capital affect a firm's demand for labor in the long run?
Oil companies, prompted by improvements in technology and increases in oil prices, are drilling in deeper and deeper water. Using a marginal revenue product and marginal cost diagram of drilling in
Georges, the owner of Maison d'Ail, earned his coveted Michelin star rating by smothering his dishes in freshly minced garlic. Georges knows that he can save labor costs by using less garlic, albeit
Show that the quantity of labor or capital that a firm demands decreases with a factor's own factor price and increases with the output price when the production function is Cobb-Douglas as in
A competitive firm has a constant elasticity production function, q = (L( + K()1/(. What is its marginal revenue product of labor? q = (L( + K()1/(?
Suppose that a firm's production function is q = L + K. Can it be a competitive firm? Why?
How does an individual with a zero discount rate compare current and future consumption? How does your answer change if the discount rate is infinite?
At a 10% interest rate, do you prefer to buy a phone for $100 or to rent the same phone for $10 a year? Does your answer depend on how long you think the phone will last?
A firm is considering an investment in which its cash flow is π1 = $1 (million), π2 = -$12, π3 = $20, and t = 0 for all other t. The interest rate is 7%. Use the net present value rule to
With the end of the Cold War, the U.S. government decided to downsize the military. Along with a pink slip, the government offered ex-military personnel their choice of $8,000 a year for 30 years or
Dell Computer makes its suppliers wait 37 days on average to be paid for their goods; however, Dell is paid by its customers immediately. Thus, Dell earns interest on this float, the money that it is
Many retirement funds charge an administrative fee equal to 0.25% on managed assets. Suppose that Alexx and Spenser each invest $5,000 in the same stock this year. Alexx invests directly and earns 5%
Your gas-guzzling car gets only 10 miles to the gallon and has no resale value, but you are sure that it will last five years. You know that you can always buy a used car for $8,000 that gets 20
Pacific Gas and Electric sent its customers a comparison showing that a person could save $80 per year in gas, water, and detergent expenses by replacing a traditional clothes washer with a new
You plan to buy a used refrigerator this year for $200 and to sell it when you graduate in two years. Assuming that you can get $100 for the refrigerator at that time, there is no inflation, and the
You want to buy a room air conditioner. The price of one machine is $200. It costs $20 a year to operate. The price of another air conditioner is $300, but it costs only $10 a year to operate.
Two different teams offer a professional basketball player contracts for playing this year. Both contracts are guaranteed, and payments will be made even if the athlete is injured and cannot play.
You are buying a new $20,000 car and have the option to pay for the car with a 0% loan or to receive $500 cash back at the time of the purchase. With the loan, you pay $5,000 down when you purchase
If all the coal in the ground, Q, is to be consumed in two years and the demand for coal is Qt = A((t)( in each year t where ( is a constant demand elasticity, what is the price of coal each year?
Trees, wine, and cattle become more valuable over time and then possibly decrease in value. Draw a figure with present value on the vertical axis and years (age) on the horizontal axis and show this
If the interest rate is near zero, should an individual go to college, given the information in the figure in the Challenge Solution? State a simple rule for determining whether this individual
At current interest rates, it pays for Bob to go to college if he graduates in four years. If it takes an extra year to graduate from college, does going to college still pay? Show how the figure in
Which is worth more to you: (a) A $10,000 payment today or (b) A $1,000-per-year higher salary for as long as you work? At what interest rate would (a) be worth more to you than (b)? Does your answer
In 2012, the Clarkson Community Schools in Clarkson, Michigan paid its starting teachers $38,087 employees with a bachelor's degree and $41,802 with a master's degree. (For simplicity, assume that
In a neighborhood with 1,000 houses, 5 catch fire (but are not damaged by high winds), 7 are damaged by high winds (but do not catch fire), and the rest are unharmed during a one-year period. What is
Guojun offers to bet Kristin that if a six-sided die comes up with one or two dots showing, he will pay her $3, but if it comes up with any other number of dots, she'll owe him $2. Is that a fair bet
Lisa just inherited a vineyard from a distant relative. In good years (when there is no rain or frost during harvest season), she earns $100,000 from the sale of grapes from the vineyard. If the
Suppose that Irma's utility function with respect to wealth is U(W) = 100 + 100W - W2. Show that for W < 10, Irma's Arrow-Pratt risk-aversion measure increases with her wealth?
Carolyn and Sanjay are neighbors. Each owns a car valued at $10,000. Neither has comprehensive insurance (which covers losses due to theft). Carolyn's wealth, including the value of her car is
Jen's utility function with respect to wealth is U(W) = (W. Plot her utility function. Use your figure and calculus to show that Jen is risk averse. (You can also use calculus to see if she is risk
Jen, in Exercise 2.2, may buy Stock A or Stock B. Stock A has a 50% chance of being worth $100 and 50% of being worth $200. Stock B's value is $50 with a change of a half or $250 with a probability
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