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economics
Principles of Economics 7th edition Fred M. Gottheil - Solutions
There are 1,000 shareholders of Stack Promotions, Inc. Suppose you are one of them. Explain why you would prefer to buy shares of the business and not the corporation's bonds.
In June 2010, the company began to promote concerts in Europe. By January 2011, 60 percent of its business was overseas concerts. Does that make Stack Promotions, Inc. a multinational? Explain.
Coca-Cola is a multinational. How does the multinational differ from any other form of corporate organization?
Sara Cook took an exam on entrepreneurship and business ownership. She was asked to identify which business organization in the United States has the largest number of firms and which has the largest receipts. She got an A on the exam. How did she answer those questions?
Corporate warfare can get nasty. One firm may decide to acquire another. How does it do this? What can the target corporation do to prevent its being taken over? Should stockholders of either corporation be concerned about the attempted takeover?
What is the issue of corporate governance? To what extent does it affect shareholders?
Suppose Laura Spears starts a tree nursery business. What kind of fixed costs would she be expected to incur? What identifies those costs as fixed?
What kinds of variable costs would she encounter? What identifies those costs as variable?
Explain the law of diminishing returns. How does it relate to the cost of labor?
What would be American Airlines' marginal cost of adding a passenger to its Boeing 747 flight from Minneapolis to Seattle, assuming seats are available? Explain.
Why would you expect the time length of a long run to be different for different firms?
The average fixed-cost curve is downward sloping, approaching zero. Why?
Explain why economies of scale, constant returns to scale, and diseconomies of scale occur.
Why is the long-run average total cost curve described as an envelope curve? What is it enveloping?
What do economists mean by downsizing?
At relatively low levels of output, the firm's aver age fixed cost dominates its average total cost, but at relatively high levels of output, the firm's aver age variable cost dominates. Why?
Why would a firm switch from one short-run average total cost structure to another?
Although labor is considered a variable cost item in most industries, it is perhaps more accurate to consider the labor employed in the major league baseball industry (i.e., baseball players) as fixed cost items. Explain.
Describe the major fixed-costs and variable costs associated with each of the following: a. grass cutting b. making pizza c. bus transportation d. babysitting e. making automobiles f. heart transplants g. hotel accommodations
Complete the following table, then plot the TC curve on a graph.
Plot TFC and TVC and compare the graphs to the TC curve. What relationship do you see?
Compose another table that shows AFC, AVC, ATC, and MC drawn from the data in practice problem 1, then graph each.
Suppose a watch firm faces the short-run average total cost curves and the long-run average total cost curve that envelops them, shown here. Which short run average total cost structure would it choose if it plans to produce 100 watches? 400 watches? Explain.
Complete the table.
Complete the table. Can you cite an example of a good whose cost structure approximates the characteristics of this table?
(a) What is the relationship between price and marginal revenue? Construct a table and graph to illustrate.(b) If the price curve is horizontal, P = MR. Explain.
(a) What differentiates the entrepreneur from other factors of production (b) Who and what are stakeholders? (c) How do they differ from stockholders?
How does total revenue differ from total profit?
According to the MR = MC rule, when the firm is producing at an output level where MR > MC, the firm should produce more. Explain.
Explain how the Boston Celtics of the NBA can use the MR = MC rule to decide whether to sign a college superstar to a first-year $10 million contract.
How does the MR = MC rule apply to loss minimization?
What rule should the firm use in deciding when to shut down production in the short run? In the long run?
What is the LesterMachlup controversy about?
What is the firm's total profit?
Suppose price falls to $34. Where should the firm produce, if at all? Does the firm maximize profit or minimize loss at that output level? How much?
Suppose the demand curve is downward sloping, as shown in the following table. Calculate marginal revenue at each output level.
What is total profit (or total loss)?
Four firms produce four different goods. Deter mine which firms should shut down in the short run and/or in the long run, given the following data for each.
Monopolists can choose to produce at any price along its demand curve, but that option does not exist for firms in perfect competition. Explain.
Think in terms of market share and variety of goods. The ability or inability of firms to enter an industry differentiates the monopoly from a monopolistically competitive industry. Explain.
What is the relationship between cross elasticities of demand and the identification of specific goods to specific markets?
What is a natural monopoly? Give two examples of monopolies you consider natural.
Why does the government issue patents?
Describe the major factors distinguishing market structures.
Explain why an economist and a zoologist, look ing at horses, cows, and automobiles, would not choose the same two out of three as belonging to a set.
Why is the size of the firm not a very reliable criterion in identifying monopoly?
There is hardly any good that does not have substitutes. Discuss.
Why is the demand curve for a firm in monopolistic competition downward sloping?
How are fewness of firms and mutual interdependence related?
The following demand schedules are given for Todd Fletcher's T-Shirt Company. What market structures is Todd Fletcher not in?Calculate the firm's market share at $9 and at $6 with 0, 10, and 20 competitors.
Identify the market structures associated with Firm A, Firm B, and Firm C.
Complete the table for a Taco Bell burrito special, using any numbers you wish, to illustrate (1) Taco Bell's most effective advertising and (2) its more moderately effective advertising, relative to the demand schedule for the burrito special with no advertising. Explain your choices.
Complete the table for a Taco Bell burrito special, using any numbers you wish, to illustrate the impact on Taco Bell of (1) Wendy's most effective advertising and (2) its more moderate effective advertising. Explain your choices.
What does the statement "in monopoly, the firm is the industry" mean?
If you were an entrepreneur in a perfectly com petitive market, would you attempt to innovate? Why or why not?
Why do firms produce where MR = MC? Why not at the lowest point on their ATC curves? After all, it's the most efficient level of output.
Why is the perfectly competitive firm's long-run supply curve identical to its marginal cost curve lying above its ATC?
Why are price and marginal revenue identical for the firm in perfect competition?
Economists refer to perfectly competitive firms as price-takers and to monopolies as price-makers. Why?
For perfectly competitive firms, economic profit exists only in the short run. Why?
Why are demand curves for perfectly competitive firms horizontal and for firms in monopolistic competition downward sloping?
Can you think of markets in which there is absolutely no product differentiation? If you owned a firm in such a market, what would your demand curve look like? What would the demand curve for the market look like?
Why does the firm's demand curve become more elastic in a monopolistically competitive market as more firms enter the market?
In perfect competition, imitators dampen the innovating spirit of innovators. Explain.
Inevitably, a firm in monopolistic competition ends up producing where its ATC curve is tangent to its demand curve. Explain.
Make the argument that consumers are better off when the economy's market structures are more competitive than monopolistic.
Why are economies of scale central to the argument that monopolies may end up producing more and charging less than perfectly competitive firms?
Compare John K. Galbraith's and Alfred Marshall's views on innovation and plant size.
Perfectly competitive firms in long-run equilibrium produce at the lowest point on their ATC curve. They produce at maximum efficiency. Yet, producing at an output that generates maximum efficiency isn't their intent. Why, then, do they end up there?
Suppose the cost schedule for a perfectly competitive firm producing brooms is:If the market price is $5, how many brooms would the firm produce? Would the firm be making economic profit? How could you tell if the firm is in long-run equilibrium?
Suppose the firm is a monopoly and its price schedule is:How many brooms would the firm produce? Would the firm be making an economic profit?
The following table shows cost data for three firms in perfect competition:Draw the supply curve for this perfectly competitive market.
Now suppose the three firms are in a monopolistically competitive market and their demand curves are as follows:Combining their cost data in practice problem 3 with their demand curves shown here, calculate how much each firm would produce and at what price.
Suppose you were managing a firm in unbal anced oligopoly and your market share was less than 5 percent. Describe how your price and output levels would be determined.
Discuss the relationship between concentration ratios and market power.
How does the behavior of an oligopolist differ from the behavior of a monopolist? From a firm in perfect competition? From a firm in monopolistic competition?
Why is game theory useful in describing the behavior of firms in oligopoly? According to game theorists, do oligopoly prices tend toward equilibrium? Why, or why not?
What are concentration ratios?
Is the U.S. economy becoming more oligopolistic? What evidence supports your answer?
What is the difference between balanced and unbalanced oligopoly?
How does godfathering work? Who decides price? How do other firms in the oligopoly react to the price leader? Why?
Explain what is meant by a kinked demand curve. Why is it kinked?
What are the differences among horizontal, ver tical, and conglomerate mergers? Give examples of each.
Why do firms in oligopoly produce many brands of the same good?
What is price discrimination? Why would a firm want to price discriminate? Cite examples.
If the goal of both firms in a balanced oligopoly is to avoid ending up in a worst-case scenario, a Nash equilibrium results. Explain.
Suppose you were on a weight-controlling diet and regularly lunched on either Lean Cuisine or Healthy Choice, the only two firms in the microwave-ready, frozen diet-food industry. Why would you be happy if both firms had no qualm about cheating on each other?
Tit-for-tat--meaning if you raise your price, I'll match you by raising mine, and if you lower your price, I'll match you by lowering mine--seems to be a win/win strategy for both firms competing in a balanced oligopoly industry. So why does it not always end up as a win/win situation for them?
Explain the difference between two firms merging and two firms engaging in a joint venture.
Suppose you were head of a nationwide hotel chain that had a supply of 10,000 rooms. And suppose that the demand schedule for these rooms per night was as follows:What would be the most profitable price, assuming you had a single-price policy? Now suppose you can price discriminate. How would you
Suppose you read the 2004 Census of Manu factures in Canada and noted four-firm concentration ratios and Herfindahl-Hirschman indexes for the following oligopolistic industries:Which one represents the most unbalanced oli gopoly? Explain. Can you determine from the data which of the leading firms
Let's play a two-firm theory of games, with high/ low price options and corresponding payoffs. Imagine the game played between Nike and Reebok. Construct your own profit options for Nike in the table provided and explain what Nike would most likely do.
Graph a kinked demand curve and its corresponding marginal revenue curve.
Lean Cuisine and Healthy Choice can charge either $4 or $2 for their microwave-ready, frozen diet foods. Using the accompanying payoff matrix, and assuming for each a pricing strategy that avoids the worst-case scenario, what price do they pick?
Construct a payoff matrix--by picking any two firms, any set of prices, and any payoffs associated with the pricing combinations--that shows a successful tit-for-tat pricing strategy.
Jon Kaufman argues that the cable company in his neighborhood charges monopoly prices and that the municipal government should regulate it. Brad Fish disagrees. He thinks there is no reason to invite government in. Make the case for both views.
With two firms in the industry, if the market is contestable, prices will be moderate. Explain.
Describe five different views economists hold concerning what to do about monopoly and oligopoly pricing
Discuss the difference between fair pricing and marginal cost pricing in regulated industries.
Why would economists argue in favor of allowing monopolies and oligopolies to set their own prices undisturbed by government? What assumptions do they make concerning economies of scale?
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