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business
micro economics

Questions and Answers of Micro Economics

Why doesn't a monopolistically competitive firm produce where P = MC, as a perfectly competitive firm does?
Stephen runs a pet salon. He is currently grooming 125 dogs per week. If instead of grooming 125 dogs, he grooms 126 dogs, he will add $68.50 to his costs and $60.00 to his revenues. What will be the
Maria manages a bakery that specializes in ciabatta bread, and she has the following information on the bakery's demand and costs:a. To maximize profit, how many loaves of ciabatta bread should Maria
Suppose a firm producing table lamps has the following costs: Quantity Average Total
According to an article in the New York Times, in 2014 Chipotle Mexican Grill experienced an increase in the cost of the beef used in its beef burritos. Draw a graph showing the effect of this
William Germano previously served as the vice president and publishing director at the Routledge publishing company. He once gave the following description of how a publisher might deal with an
In 1916, Ford Motor Company produced 500,000 Model T Fords, at a price of $440 each. The company made a profit of $60 million that year. Henry Ford told a newspaper reporter that he intended to
Use the following graph for Elijah's Burgers to answer the questions.a. If Elijah produces at the profit-maximizing level of output, how much is his total revenue? How much is his total cost? Briefly
What effect does the entry of new firms have on the economic profit of existing firms?
In 2015, analysts at the Goldman Sachs investment bank were optimistic that Buffalo Wild Wings would increase its profit over the next few years. They cited two factors as favorable to the chain's
Michael Korda was, for many years, editor-in-chief at the Simon & Schuster book publishing company. He has written about the many books that have become bestsellers by promising to give readers
An article in the Wall Street Journal reported that Western European brewers such as Heineken, Carlsberg, and Anheuser-Busch InBev are increasing their production and marketing of nonalcoholic beer.
Why does the entry of new firms cause the demand curve of an existing firm in a monopolistically competitive market to shift to the left and to become more elastic?
What is the difference between zero accounting profit and zero economic profit?
Is it possible for a monopolistically competitive firm to continue to earn an economic profit as new firms enter the market?
Chipotle Mexican Grill restaurants have been a very popular "fast-casual" dining option-with better food choices than fast-food restaurants like McDonald's and faster service and lower prices than
Suppose Angelica opens a small store near campus, selling beef brisket sandwiches. Use the graph below, which shows the demand and cost for Angelica's beef brisket sandwiches, to answer the following
A student remarks: If firms in a monopolistically competitive industry are earning an economic profit, new firms will enter the industry. Eventually, a representative firm will find that its demand
Competition from Amazon and other online booksellers has resulted in some brick-and-mortar bookstores suffering losses. According to an article in the New York Times, over the past 15 years, the
An article in the New York Times describes Chipotle as "the restaurant chain that has come to symbolize the tastes of the millennial generation" and lists the sources of Chipotle's success as
What are the differences between the long-run equilibrium of a perfectly competitive firm and the long-run equilibrium of a monopolistically competitive firm?
Why is a monopolistically competitive firm not productively efficient? In what sense does a monopolistically competitive firm have excess capacity?
Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic well-being to society in these markets? In
A student makes the following comment: I can understand why a perfectly competitive firm won't earn a profit in the long run because it charges a price equal to marginal cost. But a monopolistically
Consider the following graph:a. Is it possible to say whether this firm is a perfectly competitive firm or a monopolistically competitive firm? If so, explain how you are able to make this
In describing what happened to Crumbs Bakery, an analyst of the food industry noted the entry of competitors such as Sprinkles and Georgetown Cupcake. He concluded, "It got to the level where there
Consider the following graph:a. At the profit-maximizing level of output, how much economic profit is this firm earning? Briefly explain. b. Is this firm allocatively efficient? Is it productively
In recent years, consumers have been less willing to buy packaged foods that contain gluten or high levels of fat and salt or soft drinks containing sugar. Firms such as General Mills, Kellogg, and
Define marketing. Is marketing just another name for advertising?
Draw a graph that shows the effect on a firm's profit when it increases spending on advertising but the increased advertising has no effect on the demand for the firm's product.
A skeptic says: "Marketing research and brand management are unnecessary. If a company wants to find out what customers want, it should simply look at what they're already buying." Do you agree with
For years, the Abercrombie & Fitch clothing stores received free advertising by placing the company logo prominently on the shirts, hoodies, and other clothing they sell. A news story indicated that
Some companies have done a poor job protecting the images of their products. For example, Hormel's Spam brand name is widely ridiculed and is associated with annoying commercial messages received via
JustFab is an online fashion retailer that analyzes information about customers obtained from its Web site to gauge the clothing they like most and the frequency of their purchases. This information
What are the key factors that determine the profitability of a firm in a monopolistically competitive market?
How might a monopolistically competitive firm continually earn an economic profit?
According to an article in the Wall Street Journal: In early January last year, after a disappointing Christmas season and amid worries about competition from discount retailers, Zale Corp. decided
7-Eleven, Inc., operates more than 20,000 convenience stores worldwide. Edward Moneypenny, 7-Eleven's chief financial officer, was asked to name the biggest risk the company faced. He replied, "I
A firm that is first to market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. For example, the ballpoint pens made by the
Wealthy investors often invest in hedge funds. Hedge fund managers use investors' money to buy stocks, bonds, and other investments with the intention of earning high returns. But an article in the
The North Carolina State Board of Dental Examiners had been requiring that only licensed dentists be allowed to sell teeth-whitening services. The board brought legal action against hair salons and
What do barriers to entry have to do with the extent of competition in an industry? What is the most important reason that some industries, such as music streaming, are dominated by just a few firms?
Give an example of a government-imposed barrier to entry. Why would a government be willing to erect barriers to firms entering an industry?
Michael Porter has argued that "the intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic
An article in the Wall Street Journal noted that Google was planning on entering the market to provide wireless data services. According to the article, "Google has said it isn't looking to supplant
While a professor at the Harvard Business School, the late Thomas McCraw wrote: "Throughout American history, entrepreneurs have tried, sometimes desperately, to create big businesses out of
Alfred Chandler, who was a professor at the Harvard Business School, once observed: "Imagine the diseconomies of scale-the great increase in unit costs-that would result from placing close to
Give brief definitions of the following concepts. a. Game theory b. Cooperative equilibrium c. Non-cooperative equilibrium d. Dominant strategy e. Nash equilibrium f. Price leadership
UPS and FedEx both struggle to deliver the surge of packages they receive during the end-of-year holiday season. According to an article in the Wall Street Journal, in 2014, both firms considered
Coca-Cola and Pepsi both advertise aggressively, but would they be better off if they didn't? Their commercials are usually not designed to convey new information about their products. Instead, they
An economist argues that with respect to advertising in some industries, "gains to advertising firms are matched by losses to competitors" in the industry. Briefly explain the economist's reasoning.
World War I began in August 1914 and on the Western Front quickly bogged down into trench warfare. In Belgium and northern France, British and French troops were dug into trenches facing German
In 2014, Walmart decided that it would begin a new policy in which its stores would match prices being charged by large Web retailers such as Amazon. For example, if it was selling a 4K television
In 2015, the U.S. Department of Justice was investigating whether the four major U.S. airlines were colluding by restraining increases in capacity with the goal of avoiding price cutting. An airline
Airlines sometimes find themselves in price wars. Consider the following game: Delta and United are the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge
For many years, airlines would post proposed changes in ticket prices on computer reservation systems several days before the new ticket prices went into effect. Eventually, the federal government
Finding dominant strategies is often a very effective way of analyzing a game. Consider the following game: Microsoft and Apple are the two firms in the market for operating systems. Each firm has
Suppose there are four large manufacturers of toilet tissue. The largest of these manufacturers announces that it will raise its prices by 15 percent due to higher paper costs. Within three days, the
Why do economists refer to the methodology for analyzing oligopolies as game theory?
Anheuser-Busch InBev is the Belgian company that produces Budweiser, which has a large market share in the U.S. beer industry. According to an article in the New York Times, "Anheuser-Busch (InBev)
What is a prisoner's dilemma game? Is the outcome of the game likely to be different in a repeated game? Briefly explain.
Bob and Tom are two criminals who have been arrested for burglary. The police put Tom and Bob in separate cells. They offer to let Bob go free if he confesses to the crime and testifies against Tom.
Explain how collusion makes firms better off. Given the incentives to collude, briefly explain why every industry doesn't become a cartel.
Under "early decision" college admission plans, students apply to a college in the fall and, if they are accepted, they must enroll in that college. Some critics of early decision plans, including
For several years, a professor at Johns Hopkins University had been using the following grading scheme for his final exam: He would give an A to the student with the highest score. The grades of the
A student argues: "The prisoner's dilemma game is unrealistic. Each player's strategy is based on the assumption that the other player won't cooperate. But if each player assumes that the other
Bradford is a small town that currently has no fastfood restaurants. McDonald's and Burger King both are considering entering this market. Burger King will wait until McDonald's has made its decision
In June 2013, Microsoft announced that its new Xbox One video game console would have a price of $499. Sony then announced that its new PlayStation 4 video game console would have a price of $399. An
Suppose that in the situation shown in Figure 14.7, TruImage's profit is $1.5 million if the firm accepts Dell's contract offer of $20 per copy. Now will Dell offer TruImage a contract for $20 per
Refer to Figure 14.5 below. Consider the entries in the row of the payoff matrix that correspond to Saudi Arabia choosing "Low Output." Suppose the numbers change so that Nigeria's profit is $15
Describe the five competitive forces model.
Does the strength of each of the five competitive forces remain constant over time? Briefly explain.
Briefly explain which of the five competitive forces is involved in each of these business developments. a. The effect on Samsung, maker of the Galaxy large screen smartphone, as Apple introduces the
Michael Porter argued that in many industries, "strategies converge and competition becomes a series of races down identical paths that no one can win." Briefly explain whether firms in these
When Apple first launched Apple Music, singer Taylor Swift refused to allow her album 1989, which had been the bestselling album of 2014, to be made available for the service because Apple did not
In the preface to the 2004 reprint of In Search of Excellence, Thomas Peters and Robert Waterman wrote: "Our main detractors point to the decline of some of the companies we featured. They miss the
Under Armour, Inc., was founded in 1996 by Kevin Plank, a 23-year-old former University of Maryland football player. The company specializes in manufacturing and selling athletic and casual apparel
Movie studios split ticket revenues with the owners of the movie theaters that show their films. An article in the Wall Street Journal in 2015 discussed how the Disney studio was attempting to
What is a monopoly? Can a firm be a monopoly if close substitutes for its product exist?
If you own the only hardware store in a small town, do you have a monopoly?
The great baseball player Ty Cobb had a reputation for being very thrifty. Near the end of his life, he was interviewed by a reporter who was surprised to find that Cobb used candles, rather than
In a column in the Wall Street Journal, venture capitalist Peter Thiel described the difference between monopoly businesses and competitive ones: "Suppose you want to start a restaurant in Palo Alto
Harvard Business School started using case studies-descriptions of strategic problems encountered at real companies-in courses in 1912. Today, Harvard Business Publishing (HBP) sells its case studies
In discussing the NCAA, the late Nobel Laureate Gary Becker, an economist, wrote, "It is impossible for an outsider to look at these [NCAA] rules without concluding that their main aim is to make the
What are the four most important ways a firm becomes a monopoly?
Why was De Beers worried that people might resell their old diamonds? How did De Beers attempt to convince consumers that previously owned diamonds were not good substitutes for new diamonds? How did
In a magazine article, a writer explained that the provision of electric power in the United States consists of two processes: the generation of electricity and the distribution of electricity. The
In China, the government owns many more firms than in the United States. A former Chinese government official argued that a number of government-run industries such as oil refining were natural
Suppose that the quantity demanded per day for a product is 90 when the price is $35. The following table shows costs for a firm with a monopoly in this market:Quantity (per day) Total
As noted in this chapter, many generic versions of the diabetes drug Glucophage were introduced within the first year of Glucophage's patent expiration. The U.S. Supreme Court has ruled that patients
If patents, copyrights, and trademarks reduce competition, why does the federal government grant them?
What is a public franchise? Are all public franchises natural monopolies?
The U.S. Postal Service (USPS) is a monopoly because the federal government has blocked entry into the market for delivering first-class mail. Is the USPS also a natural monopoly? How can we tell?
Patents are granted for 20 years, but pharmaceutical companies can't use their patent-guaranteed monopoly powers for anywhere near this long because it takes several years to acquire approval of
If firms incurred no cost in developing new technologies and new products, would there be any need for patents? Briefly explain.
The German company Koenig & Bauer has 90 percent of the world market for presses that print currency. Discuss the factors that would make it difficult for new companies to enter this market.
Why should it matter legally whether Professor Anspach is correct that Hasbro's Monopoly game closely resembles a game that had been played for decades before Charles Darrow claimed to have invented
What is the relationship between a monopolist's demand curve and the market demand curve? What is the relationship between a monopolist's demand curve and its marginal revenue curve?
Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Briefly explain.
In what sense is a monopolist a price maker? Will charging the highest possible price always maximize a monopolist's profit? Briefly explain.

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