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business
micro economics

Economics 6th edition R. Glenn Hubbard - Solutions

Draw a graph that shows a monopolist earning a profit. Be sure your graph includes the monopolist's demand, marginal revenue, average total cost, and marginal cost curves. Be sure to indicate the profit-maximizing level of output and price.
Ed Scahill has acquired a monopoly on the production of baseballs (don't ask how) and faces the demand and cost situation shown in the following table.a. Fill in the remaining values in the table.b. If Ed wants to maximize profit, what price should he charge, and how many baseballs should he sell?
Use the information in Solved Problem 15.3 to answer the following questions.a. What will Comcast do if the tax is $36.00 per month instead of $25.00? (Hint: Will its decision be different in the long run than in the short run?)b. Suppose that the flat per-month tax is replaced with a tax on the
Before inexpensive pocket calculators were developed, many science and engineering students used slide rules to make numerical calculations. Slide rules are no longer produced, which means nothing prevents you from establishing a monopoly in the slide rule market. Draw a graph showing the situation
Does a monopolist have a supply curve? Briefly explain.
A student argues: "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity the same and just increase his profit." Do you agree? Use a graph to illustrate your answer.
When homebuilders construct a new housing development, they usually sell to a single cable television company the rights to lay cable. As a result, anyone buying a home in that development is not able to choose between competing cable companies. Some cities have begun to ban such exclusive
Suppose that a perfectly competitive industry becomes a monopoly. Describe the effects of this change on consumer surplus, producer surplus, and deadweight loss.
Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power for the economy large or small?
Economist Harvey Leibenstein argued that the loss of economic efficiency in industries that are not perfectly competitive has been understated. He argued that when competition is weak, firms are under less pressure to adopt the best techniques or to hold down their costs. He referred to this effect
Most cities own the water system that provides water to homes and businesses. Some cities charge a flat monthly fee, while other cities charge by the gallon. Which method of pricing is more likely to result in economic efficiency in the water market? Be sure to refer to the definition of economic
Review the concept of externalities from Chapter 5, page 148. If a market is a monopoly, will a negative externality in production always lead to production beyond the level of economic efficiency? Use a graph to illustrate your answer.Externalities and Economic EfficiencyWhen you consume a Big
Suppose a second seafood restaurant opens in Stonington, Maine. Will consumer surplus and economic efficiency necessarily increase? Briefly explain.
Suppose that the city has given Jorge a monopoly selling baseball caps at the local minor league stadium. Use the following graph to answer the questions.a. What quantity will Jorge produce, and what price will he charge? b. How much profit will Jorge earn? c. Review the definition of allocatively
What is the purpose of the antitrust laws? Who is in charge of enforcing these laws?
The following table shows the market shares during the first three months of 2015 for companies in the U.S. personal computer (PC) market, which includes desk-based PCs and mobile PCs, such as mini-notebooks, but not tablet computers, such as iPads: Company Market
Consider the natural monopoly shown in Figure 15.7. Assume that the government regulatory agency sets the regulated price, PR, at the level of average total cost at which the demand curve intersects the ATC curve. If the firm knows that it will always be able to charge a price equal to its average
Use the following graph of a monopoly to answer the questions.a. What quantity will the monopoly produce, and what price will the monopoly charge? b. Suppose the government decides to regulate this monopoly and imposes a price ceiling of $18 (in other words, the monopoly can charge less than $18
Why would it be economically efficient to require a natural monopoly to charge a price equal to marginal cost? Why do most regulatory agencies require natural monopolies to charge a price equal to average cost instead?
Food service firms buy meat, vegetables, and other foods and resell them to restaurants, schools, and hospitals. US Foods and Sysco are by far the largest firms in the industry. In 2015, these firms were attempting to combine or merge to form a single firm. A news story quoted one restaurant owner
Between them, Zillow and Trulia have a very large share of the market for online real estate listings. Real estate brokers who want to advertise their services next to online listings of houses for sale have few other choices. Zillow and Trulia have considered merging. The two firms argue that real
Writer Mathew Yglesias disagrees with critics who claim that Amazon has a monopoly in the e-book market: "Amazon doesn't have any kind of monopoly.... One important hint ... can be found in its quarterly financial reports. That's where you find out about a company's profits." a. What conditions
After a federal court judge had found Apple guilty of conspiring with book publishers to raise e-book prices, the Department of Justice recommended that the judge order Apple not to sign agency pricing model contracts with publishers for five years. The publishers objected to the recommendation,
Draw a graph like Figure 15.6 on page 518 that shows a merger lowering costs. On your graph, show producer surplus and consumer surplus before a merger and consumer surplus and producer surplus after a merger.
Look again at the section "The Department of Justice and FTC Merger Guidelines," which begins on page 518. Evaluate the following situations. a. A market initially has 20 firms, each with a 5 percent market share. Of the firms, 4 propose to merge, leaving a total of 17 firms in the industry. Are
What is the law of one price? What is arbitrage?
Does a product always have to sell for the same price everywhere? Briefly explain.
Economist Richard Thaler of the University of Chicago notes that most economists consider arbitrage to be one way "that markets can do their magic." Briefly explain the role arbitrage can play in helping markets to work.
Prices for many goods are higher in the city of Shenzhen on the mainland of China than in the city of Hong Kong. An article in the Economist notes that "individuals can arbitrage these differences through what effectively amounts to smuggling." a. Explain what the article means when it notes that
Suppose California has many apple trees, and the price of apples there is low. Nevada has few apple trees, and the price of apples there is high. Abner buys low-priced California apples and ships them to Nevada, where he resells them at a high price. Is Abner exploiting Nevada consumers by doing
Suspicions about arbitrage have a long history. For example, Valerian of Cimiez, a Catholic bishop who lived during the fifth century, wrote: "When something is bought cheaply only so it can be retailed dearly, doing business always means cheating." What might Valerian think of eBay? Do you agree
What is price discrimination? Under what circumstances can a firm successfully practice price discrimination?
Online newspapers can earn revenue from subscriptions and from advertisements. The more readers who access the paper's site, the higher the advertising revenue the paper earns. To increase revenue, in 2011 the New York Times began offering online subscriptions for $180 per year. Anyone purchasing
A state law in California makes it illegal for businesses to charge men and women different prices for dry cleaning, laundry, tailoring, or hair grooming. The state legislator who introduced the law did so after a dry cleaner charged her more to have her shirts dry cleaned than to have her
Use the graphs above to answer the questions.a. If this firm wants to maximize profits, what price will it charge in Market 1, and what quantity will it sell?b. If this firm wants to maximize profits, what price will it charge in Market 2, and what quantity will it sell?
In addition to discounting the price of computers purchased by students and faculty, Apple sells certain computer models only to schools and universities. According to a discussion on the Mac Rumors blog: Apple has quietly launched a lower cost $999 iMac for educational institutions this morning.
Jason Furman and Tim Simcoe, the chair of and a senior economist for President Barack Obama's Council of Economic Advisors, wrote, "Economists have studied [price discrimination] for many years, and while big data seems poised to revolutionize pricing practice, it has not altered the underlying
In 2012, some electronics firms began offering Ultra HD, often called 4K, televisions. These televisions offer a crisper picture than conventional HD televisions. Initially, these televisions had prices as high as $20,000. One electronics industry analyst was quoted in a news story as saying, "By
Walt Disney World charges residents of Florida lower prices for theme park tickets than it charges non-Florida residents. For example, in 2015, an adult Florida resident was charged $201.29 for a three-day ticket. The price of the same package for a non-Florida resident was $275.00. a. What is
Many supermarkets provide regular shoppers with "loyalty cards" that the shoppers swipe each time they check out. By swiping the card, a shopper receives reduced prices on a few goods, and the supermarket compiles information on all the shoppers' purchases. Recently, some supermarkets have switched
Fernando has a monopoly on sales of pizzas in the small town of North Key Largo, Florida. Use the following information on the demand for Fernando's pizzas to answer the questions. Price Quantity
In 2015, the Rock and Roll Hall of Fame and Museum charged adults $25.85 for admission. Seniors (65 years and older) and military personnel were charged $20.50, and children between 9 and 12 years old were charged $16.25. Use the admission fees to rank these groups based on their elasticity's of
What is yield management? Give an example of a firm using yield management to increase profits.
What is perfect price discrimination? Is it likely to ever occur? Is perfect price discrimination economically efficient? Briefly explain.
Is it possible to practice price discrimination across time? Briefly explain.
Some people-usually business travelers-have a very strong desire to fly to a particular city on a particular day, and airlines charge these travelers higher ticket prices than they charge other people, such as families who are planning vacations months in advance. Some people really like Big Macs,
When asked what was most valuable about the big data Disney was collecting from its MagicBands program, the executive in charge of the program stated, "The biggest value comes from being able to segment customers into better, smarter segments so you know what is going on and can act on those
BMW sells cars in China at a price two to three times higher than in the United States. Some people have purchased BMWs in the United States and exported them for resale in China. An article in the Wall Street Journal quoted a spokesperson for BMW as stating, "Vehicles exported to other countries
What is odd pricing?
During the nineteenth century, the U.S. Congress encouraged railroad companies to build transcontinental railways across the Great Plains by giving them land grants. At that time, the federal government owned most of the land on the Great Plains. The land grants consisted of the land on which the
If you visited Disneyland between 1955 and 1982, most rides would have required a ticket-in addition to the ticket necessary to enter the park. Explain why this pricing strategy earned Disney a lower profit than the current strategy of requiring visitors to purchase a ticket to enter the park but
Is using cost-plus pricing consistent with a firm maximizing profit? How does the elasticity of demand affect the percentage price markup that firms use?
Give an example of a firm using a two-part tariff as part of its pricing strategy.
One leading explanation for odd pricing is that it allows firms to trick buyers into thinking they are paying less than they really are. If this explanation is correct, in what types of markets and among what groups of consumers would you be most likely to find odd pricing? Should the government
Instacart is an Internet startup that offers home delivery of groceries. It buys the groceries in regular brick-andmortar supermarkets, marks up the prices it pays, and then charges consumers the higher prices in exchange for making home deliveries. According to an article in the Wall Street
A review of Kappo Masa, a popular restaurant in New York City, notes, "The markup that New York restaurants customarily add to retail wine and sake prices is about 150 percent. The average markup at Kappo Masa is 200 percent to 300 percent." Even 150 percent is a much larger markup than the markups
An article in the Wall Street Journal gave the following explanation of how products were traditionally priced at Parker-Hannifin Corporation: For as long as anyone at the 89-year-old company could recall, Parker used the same simple formula to determine prices of its 800,000 parts-from
Would you expect a publishing company to use a strict cost-plus pricing system for all its books? How might you find some indication about whether a publishing company actually is using cost-plus pricing for all its books?
Some professional sports teams charge fans a one-time lump sum for a personal seat license. The personal seat license allows a fan the right to buy season tickets each year. No one without a personal seat license can buy season tickets. After the original purchase from the team, the personal seat
Why is the demand curve for labor downward sloping?
What are the five most important variables that cause the market demand curve for labor to shift?
Frank Gunter owns an apple orchard. He employs 87 apple pickers and pays them each $8 per hour to pick apples, which he sells for $1.60 per box. If Frank is maximizing profit, what is the marginal revenue product of the last worker he hired? What is that worker's marginal product?
Complete the following table for Terrell's Televisions:a. From the information in the table, can you determine whether this firm is a price taker or a price maker? Briefly explain.b. Use the information in the table to draw a graph like Figure 17.1 below that shows the demand for labor by this
Baseball writer Rany Jazayerli assessed then Kansas City Royals outfielder Jose Guillen as follows: "Guillen has negative value the way his contract stands." How could a baseball player's contract cause him to have negative value to a baseball team?
The following comments were made by two employers regarding a proposed increase in the federal minimum wage: Dillon Edwards, founder of Parlor Coffee: "[The increase] should definitely be [to] more than [$8.75 an hour].... It needs to be at least in double digits." Beth Fahey, owner of Creative
How can we measure the opportunity cost of leisure? What are the substitution effect and the income effect resulting from a wage change? Why is the supply curve of labor usually upward sloping?
What are the three most important variables that cause the market supply curve of labor to shift?
Daniel was earning $65 per hour and working 45 hours per week. Then Daniel's wage rose to $75 per hour, and as a result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for Daniel?
A columnist writing in the Wall Street Journal argues that because "hourly wages in real terms" rose, the "price of time" also rose. What is the "price of time"? Is the columnist correct that when real hourly wages rise, the price of time increases? Briefly explain.
Most labor economists believe that many adult males are on a vertical section of their labor supply curves. Use the concepts of income and substitution effects to explain under what circumstances an individual's labor supply curve would be vertical.
Suppose that a large oil field is discovered in Michigan. By imposing a tax on the oil, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Michigan?
A columnist in the New York Times notes that the U.S. labor supply "in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s." What explains these changing growth rates in the U.S. labor supply?
If the labor demand curve shifts to the left and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
If the labor supply curve shifts to the left and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
Over time, the gap between the wages of workers with college degrees and the wages of workers without college degrees has been increasing. Shouldn't this gap have increased the incentive for workers to earn college degrees, thereby increasing the supply of college-educated workers and reducing the
An article in the Wall Street Journal discussed why the hotel workers' union in New York City was against a proposal for more hotels to be built in Midtown Manhattan: "The union is concerned that rapid hotel development shrinks room prices and profit margins, driving down the wages of its members."
Sean Astin, who played the hobbit Sam in The Lord of the Rings movies, wrote the following about an earlier film he had appeared in: "Now I was in a movie I didn't respect, making obscene amounts of money (five times what a teacher makes, and teachers do infinitely more important work)." Are
A woman who owned a music store in New York City was quoted in an article in the Wall Street Journal as "bemoaning the comparative salaries of tubists and stockbrokers. 'People should be paid in terms of what they contribute to people's well being.'" a. Briefly explain on what basis people are
In the year 541, an outbreak of bubonic plague hit the Byzantine Empire. Because the plague was spread by flea-infested rats that often lived on ships, ports were hit particularly hard. In some ports, more than 40 percent of the population died. The emperor, Justinian, was concerned that the wages
During the same period that robots and other new technologies have been affecting the labor market, there has been an increase in imports to the United States of manufactured goods-including shoes, clothing, and automobiles-from countries in which workers receive lower wages. In addition, some U.S.
What is a compensating differential? Give an example.
According to Alan Krueger, an economist at Princeton University, the share of concert ticket revenue received by the top 1 percent of all acts rose from 26 percent in 1982 to 56 percent in 2003. Does this information indicate that the top acts in 2003 must have been much better performers relative
Why are there superstar basketball players but no superstar plumbers?
Sam Goldwyn, a movie producer during Hollywood's Golden Age in the 1930s and 1940s, once remarked about one of his stars: "We're overpaying him, but he's worth it." a. In what sense did Goldwyn mean that he was overpaying this star? b. If he was overpaying the star, why would the star have still
Prior to the early twentieth century, a worker who was injured on the job could collect damages only by suing his employer. To sue successfully, the worker-or his family, if the worker had been killed-had to show that the injury was due to the employer's negligence, that the worker did not know the
The following table is similar to Table 17.2, except that it includes the earnings of Asian males and females. Does the fact that Asian males are the highest-earning group in the table affects the likelihood that economic discrimination is the best explanation for why earnings differ among the
During the 1970s, many women changed their minds about whether they would leave the labor force after marrying and having children or whether they would be in the labor force most of their adult lives. In 1968, the National Longitudinal Survey asked a representative sample of women aged 14 to 24
Lawrence Katz, an economist at Harvard, was quoted in a newspaper article as arguing that differences between the incomes of male physicians and female physicians "are largely explained by individual choices." He also noted that discrimination could account for part of the gap, "though it isn't
Use the following graphs to answer the questions.a. What is the equilibrium quantity of trash collectors hired, and what is the equilibrium wage? b. What is the equilibrium quantity of receptionists hired, and what is the equilibrium wage? c. Briefly discuss why trash collectors might earn a higher
In most universities, economics professors receive larger salaries than English professors. Suppose that the government requires that from now on, all universities must pay economics professors the same salaries as English professors. Use demand and supply graphs to analyze the effect of this
Why might employers be more likely to interview a job applicant with a white-sounding name than an applicant with an African-American-sounding name? Leaving aside legal penalties, will employers who follow this practice incur an economic penalty? Briefly explain.
Define economic discrimination. Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination? Briefly explain.
An article in the New York Times reports that some firms request job applicants to report their SAT scores, even when the job applicant is middle-aged and took the test decades before. The article notes: SATs and other academic artifacts remain relevant in part because they are easy-if
Daniel Hamermesh is an economist at the University of Texas who has done a great deal of research on labor markets. According to an article in Forbes, Hamermesh writes that "below-average-looking men earn 17% less than those considered good-looking, while below-average-looking females earn 12% less
In what sense do employers who discriminate pay an economic penalty? Is this penalty enough to eliminate discrimination? Briefly explain.
Writing on the Baseball Prospectus Web site, Dan Fox argued: "What a player is really worth depends a great deal on the teams that are interested in signing him." Do you agree? Shouldn't a baseball player with a particular level of ability be worth the same to every team? Briefly explain.
An article in the Wall Street Journal on the use of driverless trucks at Rio Tinto's Australian mines observes, "The new equipment cut many driving jobs.... But the reductions will be partly offset by new types of work. The company now needs more network technicians ... a hybrid of electrical and
Joe Morgan is a sportscaster and former baseball player. After he stated that he thought the salaries of Major League Baseball players were justif ied, a baseball fan wrote the following to Rob Neyer, a sports columnist: Mr. Neyer, What are your feelings about Joe Morgan's comment that players are
Managers of Major League Baseball (MLB) teams have the responsibility of running their teams and making many decisions that can affect whether these teams win or lose. Yet in 2014 only 2 of the 30 MLB managers received a salary higher than the average salary paid to baseball players. Provide an

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