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Exploring Economics 5th Edition Robert L Sexton - Solutions

Which of the following could be considered a monopoly?a. Kate Hudson (an actress)b. DeBeers diamond companyc. The only doctor in a small townd. Ford Motor Company
Barriers to entry are important in the creation of monopolies because they keep competitors out of the industry. Although many types of barriers exist, historically, ownership of an essential resource, government patents and licenses, and large entry costs have served as the primary barriers to
Is it optimal for the monopolist to operate on the inelastic portion of the demand curve? Why or why not?
Fill in the missing data in the following table for amonopolist.
Assume that the monopolist in problem 4 had fixed costs of $10 and a constant marginal cost of $4 per unit. Add columns to the above table for Total Cost, Marginal Cost, andprofit.
The Mobile Phone Company has served Mobile, Alabama, since the 1930s as a government-authorized natural monopoly. The following table describes a portion of the demand curve for long-distance service facing Mobile Phone Company.a. Complete the table.b. How does the companyâ€™s marginal revenue
The following table shows the demand for water and cost conditions for the New South Springdale Water Utility, a pure monopoly.a. Complete the table.b. What is true about the relationship between marginal revenue and marginal costs when profit is the greatest?c. Suppose the government imposed a tax
A patent gives a firm a monopoly in production of the patented good. While the monopoly profits provide an incentive for firms to innovate, the monopoly power imposes a cost on consumers. Why do consumers suffer a cost? Is it greater than the profits earned by the monopolist?
Use the accompanying diagram to answer a€“c.a. Assuming the monopolist indicated in the diagram produced at all, indicate its profit-maximizing quantity and price.b. Add an ATC curve that would show this monopolist earning an economic profit.c. Add an ATC curve that would show this
If economic profits were zero, would a monopolist ever stay in business? Why might it be possible for a monopolist to earn positive economic profits in the long run?
What is meant by “the welfare loss” of monopoly? Why does no welfare loss occur if a monopolist successfully practices perfect price discrimination?
Consider the data in the following table:A simple monopolist with these fixed and variable cost schedules maximizes profits at what level ofoutput?
Explain how each of the following is a form of price discrimination.a. A student discount at the movie theater.b. Long-distance phone service that costs 15 cents per minute for the first 10 minutes and 5 cents per minute after 10 minutes.c. A psychic who charges each customer his or her maximum
In October of 1999, Coca-Cola announced that it was considering testing a new vending machine that was temperature sensitive. The price of the soft drinks in the machines would be higher on hot days. The Miami Herald story read “Soda Jerks.” How is this practice a form of price discrimination?
Compare the size of the welfare (deadweight) loss under monopoly in the case of perfect price discrimination and under the standard case of simple monopoly. Explain.
Use the accompanying diagram to answer a€“c.a. Indicate the efficient result on the graph.b. Illustrate the profits or losses from the efficient result in a.c. Show the average cost-pricing solution. What profits are earned with thatapproach?
Governments around the world are allowing competition in the production of goods and services that have historically been considered natural monopolies. Competition has been introduced in industries such as the local telephone service and electricity provision. Why might the introduction of
The Mississippi Bridge Authority operates a toll bridge that crosses the river near St. Louis. Traffic over the bridge includes tourist traffic and commercial traffic. It also includes commuters who work in St. Louis but live on the Illinois side of the river.a. Would you expect demand for bridge
True or False:1. In terms of the number of firms in an industry, monopoly is at the other end of the spectrum from perfect competition.2. As long as market demand curves are downward sloping, the demand curves faced by monopolists will be downward sloping.3. For a pure monopoly, the firm and the
True or False:1. The marginal revenue curve for a monopolist lies below the demand curve.2. For a monopoly to get revenue from marginal customers, the firm has to lower the price so that marginal revenue is always less than price.3. When a monopolist cuts prices to attract new customers, its
True or False:1. If, at a monopolist’s profit-maximizing price and output, the price is greater than average total cost, the monopolist is generating economic losses.2. Economic profits cannot persist in the long run for a monopolist.3. A monopolist will incur a loss if demand is insufficient to
True or False:1. By imposing monetary and nonmonetary costs on monopolists, antitrust policies aim to reduce the profitability of monopoly.2. Government regulation of monopolies aims to achieve the efficiency of large-scale production without permitting the monopolists to charge monopoly prices,
Multiple Choice Questions1. Which of the following is not a source of product differentiation?a. Physical differences in productsb. Differences in quantities that firms offer for salec. Differences in service provided by firmsd. Differences in location of sales outlets2. Which of the following
Multiple Choice QuestionsUse the accompanying diagram to answer questions 1€“2.1. Which of the demand curves represents a long-run equilibrium for the firm?a. D0b. D1c. D2d. D32. Which of the demand curves will result in the firm shutting down in the short run?a. D0b. D1c. D2d. D33. In
Which of the following markets are perfectly competitive or monopolistically competitive. Why?a. Soy marketb. Retail clothing storesc. Spago’s Restaurant Beverly Hills
List three ways in which a grocery store might differentiate itself from its competitors.
What might make you choose one gas station over another?
If Frank’s hot dog stand was profitable when he first opened, why should he expect those profits to fall over time?
Draw a graph showing a monopolistically competitive firm in a short-run equilibrium where it is earning positive economic profits. What must be true of price versus average total cost for such a firm? What will happen to the firm’s demand curve as a result of the short-run profits?
Draw a graph showing a monopolistically competitive firm in a short-run equilibrium where it is earning economic losses. What must be true of price versus average total cost for such a firm? What will happen to the firm’s demand curve as a result of the short-run losses?
How are monopolistically competitive firms and perfectly competitive firms similar? Why don’t monopolistically competitive firms produce the same output in the long run as perfectly competitive firms, which face similar costs?
Can you explain why some restaurants are highly profitable while other restaurants in the same general area are going out of business?
Suppose that half the restaurants in a city are closed so that the remaining eateries can operate at full capacity. What “cost” might restaurant patrons incur as a result?
How is price related to marginal and average total cost for monopolistically competitive firms in the following situations?a. A short-run equilibrium where it is earning positive economic profits.b. A short-run equilibrium where it is earning negative economic profits.c. A short-run equilibrium
What is meant by the price of variety? Graph and explain.
How does Starbucks differentiate its product? Why does Starbucks stay open until late at night but a donut or bagel shop might close at noon?
Why is advertising more important for the success of chains such as Toys “R” Us and Office Depot than for the corner barbershop?
Think of your favorite ads on television. Do you think that these ads have an effect on your spending? These ads are expensive; do you think they are a waste from society’s standpoint?
Product differentiation is a hallmark of monopolistic competition, and the text lists four sources of such differentiation: physical differences, prestige, location, and service. How do firms in the industries listed here differentiate their products?How important is each of the four sources of
As you know, perfect competition and monopolistic competition differ in important ways. Show your understanding of these differences by listing the following terms under either €œperfect competition€ or €œmonopolisticcompetition.€
In what way is the use of advertising another example of Adam Smith’s “Invisible Hand,” according to which entrepreneurs pursuing their own best interest make consumers better off?
True or False:1. Monopolistic competition is a mixture of monopoly and perfect competition.2. All firms in monopolistically competitive industries earn economic profits in the long run.3. By differentiating their products and promoting brand-name loyalty, firms in monopolistic competition can raise
Multiple Choice Questions:1. Which of the following is not a characteristic of oligopoly?a. A few firms control most of the production and sale of a product.b. Firms in the industry make price and output decisions with an eye to the decisions and policies of other firms in the industry.c. Competing
Multiple Choice Questions:1. The kinked demand curve model illustratesa. How price rigidity could characterize some oligopoly firms, despite changing marginal costs.b. How price increases and price decreases can elicit different responses from rival firms, in oligopoly.c. Why price rigidity may be
Which of the following markets are oligopolistic?a. Cornb. Funeral servicesc. Airline traveld. Hamburgerse. Oilf. Breakfast cereals
Which of the following are characteristic of oligopolistic industries?a. A large number of firmsb. Few firmsc. A high degree of product differentiationd. High barriers to entrye. Free entry and exitf. Mutual interdependence
Suppose Farmer Smith from Kansas and Farmer Jones from Missouri agree to restrict their combined output of wheat in an attempt to increase the price and profits. How likely do you think the Smith–Jones cartel is to succeed? Explain.
Explain how the joint profit-maximizing price of colluding firms under oligopoly is determined. How about output?
Important differences exist between perfect competition and oligopoly. Show your understanding of these differences by listing the following terms under either €œperfect competition€ or€œoligopoly.€
One of the world’s most successful cartels has been the Central Selling Organization (CSO), which controls about threequarters of the world’s diamonds. This collusive oligopoly has kept diamond prices high by restricting supply. The CSO has also promoted the general consumption of diamonds
The U.S. Justice Department has been worried that the nationâ€™s four largest air carriersâ€”Delta, Northwest, American, and Unitedâ€”use low prices to limit competition at the busiest airports. Predatory pricing exists when the dominant carrier at an airport matches the low prices
In the kinked demand model, what is assumed about rival responses to price increases? Price decreases? What does that imply about anticipated elasticities of demand as a result?
Why would someone consider how broadly or narrowly the relevant market is considered to be so critical to the results when HHI values are used to evaluate mergers?
Assume there are initially 10 firms, each with a 10 percent market share.a. What is the initial HHI?b. What will the HHI become if two firms merge?c. What will the HHI become if three firms merge?
Answer questions a–c on HHI.a. What would the HHI be for an industry made up of one firm with 30 percent of the market, and 14 firms, each with 5 percent of the market?b. What would the HHI be if two of the firms with 5 percent of the market merge?c. What would the HHI be if the large (30 percent
Are the following mergers horizontal, vertical, or conglomerate?a. Newsweek magazine and Time magazineb. Tyson Chicken and Popeye’s Chicken restaurantsc. CBS TV and Jerry Bruckheimer Productions (TV show producer)d. Alcoa and McDonald’se. Alcoa and an aluminum siding companyf. Sealy Mattress
Two firms compete in the breakfast cereal industry producing Rice Krinkles and Wheat Krinkles cereal, respectively. Each manufacturer must decide whether to promote its product with a large or small advertising budget. The potential profits for these firms are as follows (in millions of
Suppose Pepsi is considering an ad campaign aimed at rival Coca-Cola. What is the dominant strategy if the payoff matrix is similar to the one shown in Exhibit inSection?
Suppose your professor announces that each student in your large lecture class who receives the highest score (no matter how high) on the take-home final exam will get an A in the course. The professor points out that if the entire class colludes successfully everyone could get the same score. Is
The following payoff matrix shows the possible sentences that two suspects, who are arrested on suspicion of car theft, could receive. The suspects are interrogated separately and are unable to communicate with one another.Use the following information to answer the question below.For the
Why are repeated games more likely to be cooperative than one-shot games?
Why might shirking on a team project in school be a dominant strategy, but not shirking on a team project at work?
True or False:1. Under oligopoly, individual firms produce only an infinitesimal share of total output.2. The auto industry is an example of oligopoly.3. Under oligopoly, as in perfect competition and monopolistic competition, firms cannot earn economic profits in the long run.4. When firms in an
True or False:1. By the year 2050 the moon travel business consists of three international firms that create the International Moon Cartel, which restricts output and raises prices. Because this industry is an oligopoly, the existing firms’ economic profits will be guaranteed for the long run.2.
True or False:1. Horizontal, vertical, and conglomerate mergers all increase a firm’s market shares in the industries involved.2. For predatory pricing to work, a firm would have to be able to raise its prices substantially afterward.3. In noncooperative games, each firm sets its policy without
True or False:1. All network externalities act to increase consumer demands for products.2. The area of communications often exhibits positive network externalities.3. The bandwagon effect can apply to the “hot” toy during the Christmas shopping season.4. Whether a good is subject to positive
Multiple Choice Questions:1. Which is not one of society’s major economic goals?a. Maintaining employment at high levelsb. Maintaining prices at a stable levelc. Maintaining a high rate of economic growthd. All of the above are major economic goals of society.2. The three major macroeconomic
Multiple Choice Questions:1. In Littletown, the population includes 1,000 people over the age of 16; 800 are in the labor force, and 600 are employed. The unemployment rate isa. 33 percent.b. 25 percent.c. 20 percent.d. 75 percent.e. None of the above.2. The official unemployment rate may overstate
Multiple Choice Questions:1. A federal program aimed at retraining the unemployed workers of the declining auto and steel industries is designed to reduce which type of unemployment?a. Seasonalb. Cyclicalc. Structurald. Frictional2. When unemployment rises above the natural rate, it reflects the
Multiple Choice Questions:1. Inflation will be least harmful ifa. Interest rates are not adjusted accordingly when inflation occurs.b. Worker wages are set by long-term contracts.c. It is correctly anticipated and interest rates adjust accordingly.d. It is not fully anticipated.2. Unexpected
What would be the labor force participation rate if:a. The __________ population = 200 million, the labor force = 160 million, and employment = 140 million?b. The __________ population = 200 million, the labor force = 140 million, and employment = 120 million?c. Starting from the situation in (a),
Answer the following questions about unemployment:a. If a country has a noninstitutional population of 200 million and a labor force of 160 million, and 140 million people were employed, what is its labor force participation rate and its unemployment rate?b. If 10 million new jobs were created in
Which of the following individuals would economists consider unemployed?a. Sam looked for work for several weeks but has now given up his search and is going back to college.b. A 14-year-old wants to mow lawns for extra cash but is unable to find neighbors willing to hire her.c. A factory worker is
Identify whether each of the following reflects seasonal, structural, frictional, or cyclical unemployment.a. A sales employee is laid off due to slow business after consumer spending falls.b. An automotive worker is replaced by robotic equipment on the assembly line.c. A salesperson quits a job in
Which type of unemployment would be affected with the following changes? Would it go up or down?a. Increased employment benefitsb. Heavy snowfall in Minnesotac. Online job search becomes more effectived. A large, permanent decrease in the demand for coale. More people have been retrained to develop
Answer the following questions about reasons for unemployment:a. In a severe recession, what would tend to happen to the number of people in each of the following categories?Job losers Job leaversreentrantsnew entrantsb. In good economic times, why might the number of job leavers, reentrants, and
a. What is the relationship between the natural rate of unemployment and frictional, structural, and cyclical unemployment?b. What would happen to both unemployment and the normal rate of unemployment if:i. cyclical unemployment increases.ii. Frictional unemployment increases.iii. Structural
Unemployment benefits in many European countries tend to be both more generous and available for longer periods than those in the United States. What impact do you think this is likely to have on the unemployment rate in a European country? Why?
How can unions result in higher unemployment rates? How would the results differ for someone who wants to be employed in the union sector as compared with someone who currently has a job in the union sector?
Answer the following questions about inflation:a. What would be the effect of unexpected inflation on each of the following?Retirees on fixed incomes Workers Debtors CreditorsShoe-leather costsMenu costsb. How would your answers change if the inflation was expected?
Does anticipated inflation or unanticipated inflation discourage economic growth? Why?
Answer the following questions about the nominal and real interest rates:a. What would be the real interest rate if the nominal interest rate were 14 percent and the inflation rate were 10 percent? If the nominal interest rate were 8 percent and the inflation rate were 1 percent?b. What would
You borrow money at a fixed rate of interest to finance your college education. If the rate of inflation unexpectedly slows down between the time you take out the loan and the time you begin paying it back, is there a redistribution of income?Do you gain or lose? What if you already expected the
How does an adjustable rate mortgage agreement protect lenders against inflation? Who bears the inflation risk?
In 2000, a proposal was made in Santa Monica, California, to raise the minimum wage in the hotel and shopping district to a “living” wage of $10.69 per hour. Predict the effect of such legislation on unemployment in the hotel and shopping industries in Santa Monica. What would you expect to
Calculate a price index for 2005, 2006, and 2007 using the following information about prices. Let the market basket consist of one pizza, two sodas, and three video rentals. Let the year 2005 be the base year (with an index value of 100).
Indicate which of the following are true of the CPI and the GDPdeflator:
True or false:1. Economic growth means a growth in real, per capita total output over time.2. Economic growth is considered to be positive by all individuals.3. Other things being equal, relatively high rates of unemployment are almost universally viewed as bad.4. The unemployment rate is the
True or false:1. People looking for full-time work who grudgingly settle for a part-time job are counted as employed, even though they are only “partly” employed.2. Some people working in the underground economy may be counted in labor statistics as unemployed, while others may be counted as
True or false:1. Frictional unemployment, while not good in itself, is a by-product of a healthy phenomenon; and because it is short lived, it is not generally viewed as a serious problem.2. Structural employment can arise because jobs that require particular skills disappear.3. Structural
True or False:1. At the natural rate of unemployment, the economy is producing its potential output.2. When the economy is experiencing cyclical unemployment, the unemployment rate is less than the natural rate.3. In both inflation and deflation, a country’s unit of currency changes in purchasing
True or False:1. Menu costs and shoe-leather costs are modest, regardless of the rate of inflation.2. The real interest rate equals the nominal interest rate plus the inflation rate.3. When the inflation rate exceeds the nominal interest rate, real interest rates are negative.4. As long as nominal
True or False:1. In periods of high unexpected inflation, the nominal interest rate can be high while the real interest rate is low or even negative.2. In a growing economy, real GDP will tend to rise from one business cycle peak to the next.3. In an expansion, investment is rising, but
True or False:1. Since the development of the index of leading economic indicators, it has never failed to give some warning of an economic downturn.2. The lead time between a change in the index of economic indicators and changes in business conditions has varied widely.3. A price index can be
Multiple Choice Questions:1. GDP is defined as the?a. Value of all final goods and services produced in a country in a period of time.b. Value of all final goods produced in a country in a period of time.c. Value of all goods and services produced in a country in a period of time.d. Value of all
Multiple Choice Questions:1. Investment includes?a. Fixed investment.b. Fixed investment plus government investment.c. Fixed investment plus additions to business inventories.d. Fixed investment plus subtractions from business inventories.e. Fixed investment plus government investment plus
Multiple Choice Questions:1. Which of the following will be counted as part of this year’s U.S. GDP?a. Goods produced last year but not sold until this year.b. Goods produced this year by an American working in Paris.c. Purchases of Cisco Systems stock (not issued this year) that take place this
Multiple Choice Questions:1. The consumer price index?a. Takes government purchases into account, unlike the GDP deflator.b. Takes business investment purchases into account, unlike the GDP deflator.c. Equals 100 in the base year, unlike the GDP deflator.d. Is generally used to adjust nominal GDP
Answer the following questions about GDP:a. What is the definition of GDP?b. Why does GDP measure only the final value of goods and services?c. Why does GDP measure only the value of goods and services produced within a country?d. How does GDP treat the sales of used goods?e. How does GDP treat
Which of the following are included in GDP calculations?a. Cleaning services performed by Molly Maid Corporation.b. Lawn-mowing services performed by a neighborhood child.c. Drugs sold illegally on a local street corner.d. Prescription drugs manufactured in the United States and sold at a local

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