Economics 4th Edition Paul Krugman, Robin Wells - Solutions

9. Over the last 40 years the Organization of Petroleum Exporting Countries (OPEC) has had varied success in forming and maintaining its cartel agreements.Explain how the following factors may contribute to the difficulty of forming and/or maintaining its price and output agreements.a. New oil
8. Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm
7. Suppose that Coke and Pepsi are the only two producers of cola drinks, making them duopolists. Both companies have zero marginal cost and a fixed cost of$100,000.a. Assume first that consumers regard Coke and Pepsi as perfect substitutes. Currently both are sold for$0.20 per can, and at that
6. Untied and Air “R” Us are the only two airlines operating flights between Collegeville and Bigtown. That is, they operate in a duopoly. Each airline can charge either a high price or a low price for a ticket. The accompanying matrix shows their payoffs, in profits per seat (in dollars), for
5. To preserve the North Atlantic fish stocks, it is decided that only two fishing fleets, one from the United States and the other from the European Union (EU), can fish in those waters. Suppose that this fisheries agreement breaks down, so that the fleets behave noncooperatively.Assume that the
4. In France, the market for bottled water is controlled by two large firms, Perrier and Evian. Each firm has a fixed cost of �1 million and a constant marginal cost of�2 per liter of bottled water (�1 = 1 euro). The following table gives the market demand schedule for bottled water in
3. The market for olive oil in New York City is controlled by two families, the Sopranos and the Contraltos. Both families will ruthlessly eliminate any other family that attempts to enter the New York City olive oil market.The marginal cost of producing olive oil is constant and equal to $40 per
2. The accompanying table shows the demand schedule for vitamin D. Suppose that the marginal cost of producing vitamin D is zero.a. Assume that BASF is the only producer of vitamin D and acts as a monopolist. It currently produces 40 tons of vitamin D at $4 per ton. If BASF were to produce 10 more
1. The accompanying table presents market share data for the U.S. breakfast cereal market.Company Market Share Kellogg 28%General Mills 28 PepsiCo (Quaker Oats) 14 Kraft 13 Private Label 11 Other 6 Source: Advertising Age.a. Use the data provided to calculate the Herfindahl–Hirschman Index (HHI)
4. If ADM plays always cheat and Ajinomoto does the same, both firms will make a profit of $160 million each year
3. If ADM plays tit for tat but Ajinomoto plays always cheat, ADM makes a profit of only $150 million in the first year but $160 million per year thereafter.
2. If ADM plays always cheat but Ajinomoto plays tit for tat, ADM makes a profit of $200 million the first year but only $160 million per year thereafter.
1. If ADM plays tit for tat and so does Ajinomoto, both firms will make a profit of $180 million each year.
1. Which of the following factors increase the likelihood that an oligopolist will collude with other firms in the industry? The likelihood that an oligopolist will act noncooperatively and raise output? Explain your answers.a. The firm’s initial market share is small. (Hint: Think about the
How oligopoly works in practice, under the legal constraints of antitrust policy
How repeated interactions among oligopolists can help them achieve tacit collusion
How our understanding of oligopoly can be enhanced by using game theory, especially the concept of the prisoners’dilemma
Why oligopolists have an incentive to act in ways that reduce their combined profit, and why they can benefit from collusion
The meaning of oligopoly, and why it occurs
16. Walmart is the world’s largest retailer. As a consequence, it has sufficient bargaining power to push its suppliers to lower their prices so it can honor its slogan of “Always Low Prices” for its customers.a. Is Walmart acting like a monopolist or monopsonist when purchasing goods from
15. The 2014 announcement that Time Warner Cable and Comcast intended to merge prompted questions of monopoly because the combined company would supply cable access to an overwhelming majority of Americans.It also raised questions of monopsony since the combined company would be virtually the only
14. Explain the following situations.a. In Europe, many cell phone service providers give away for free what would otherwise be very expensive cell phones when a service contract is purchased. Why might a company want to do that?b. In the United Kingdom, the country’s antitrust authority
13. Prior to the late 1990s, the same company that generated your electricity also distributed it to you over high-voltage lines. Since then, 16 states and the District of Columbia have begun separating the generation from the distribution of electricity, allowing competition between electricity
12. In the United States, the Federal Trade Commission(FTC) is charged with promoting competition and challenging mergers that would likely lead to higher prices.Several years ago, Staples and Office Depot, two of the largest office supply superstores, announced their agreement to merge.
11. A monopolist knows that in order to expand the quantity of output it produces from 8 to 9 units it must lower the price of its output from $2 to $1. Calculate the quantity effect and the price effect. Use these results to calculate the monopolist’s marginal revenue of producing the 9th unit.
10. The Collegetown movie theater serves 900 students and 100 professors in town. Each student’s willingness to pay for a movie ticket is $5. Each professor’s willingness to pay is $10. Each will buy only one ticket. The movie theater’s marginal cost per ticket is constant at $3, and there is
9. This diagram illustrates your local electricity company’s natural monopoly. It shows the demand curve for kilowatt-hours (kWh) of electricity, the company’s marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the
8. Download Records decides to release an album by the group Mary and the Little Lamb. It produces the album with no fixed cost, but the total cost of creating a digital album and paying Mary her royalty is $6 per album.Download Records can act as a single-price monopolist.Its marketing division
7. Use the demand schedule for diamonds given in Problem 5. De Beers is a monopolist, but it can now price-discriminate perfectly among all five of its potential customers. De Beers’s marginal cost is constant at$100. There is no fixed cost.a. If De Beers can price-discriminate perfectly, to
6. Use the demand schedule for diamonds given in Problem 5.The marginal cost of producing diamonds is constant at$100. There is no fixed cost.a. If De Beers charges the monopoly price, how large is the individual consumer surplus that each buyer experiences? Calculate total consumer surplus by
5. Suppose that De Beers is a single-price monopolist in the diamond market. De Beers has five potential customers:Raquel, Jackie, Joan, Mia, and Sophia. Each of these customers will buy at most one diamond—and only if the price is just equal to, or lower than, her willingness to pay. Raquel’s
4. Jimmy’s room overlooks a major league baseball stadium. He decides to rent a telescope for $50.00 a week and charge his friends to use it to peep at the games for 30 seconds. He can act as a single-price monopolist for renting out “peeps.” For each person who takes a 30-second peep, it
3. Bob, Bill, Ben, and Brad Baxter have just made a documentary movie about their basketball team. They are thinking about making the movie available for download on the internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their internet
2. Skyscraper City has a subway system, for which a oneway fare is $1.50. There is pressure on the mayor to reduce the fare by one-third, to $1.00. The mayor is dismayed, thinking that this will mean Skyscraper City is losing one-third of its revenue from sales of subway tickets. The mayor’s
2. What are the various sources of market power here? What is at risk for the various parties?
1. What is the source of surplus in this industry? Who generates it? How is it divided among the various agents (author, publisher, and retailer)?
2. Which of the following are cases of price discrimination and which are not? In the cases of price discrimination, identify the consumers with high and those with low price elasticity of demand.a. Damaged merchandise is marked down.b. Restaurants have senior citizen discounts.c. Food
1. True or false? Explain your answer.a. A single-price monopolist sells to some customers that a price-discriminating monopolist refuses to.b. A price-discriminating monopolist creates more inefficiency than a single-price monopolist because it captures more of the consumer surplus.c. Under price
2. True or false? Explain your answer.a. Society’s welfare is lower under monopoly because some consumer surplus is transformed into profit for the monopolist.b. A monopolist causes inefficiency because there are consumers who are willing to pay a price greater than or equal to marginal cost but
1. What policy should the government adopt in the following cases? Explain.a. Internet service in Anytown, Ohio, is provided by cable. Customers feel they are being overcharged, but the cable company claims it must charge prices that let it recover the costs of laying cable.b. The only two airlines
2. Use Figure 13-6 to show what happens to the following when the marginal cost of diamond production rises from $200 to $400.a. Marginal cost curveb. Profit-maximizing price and quantityc. Profit of the monopolistd. Perfectly competitive industry profits?
1. Use the accompanying total revenue schedule of Emerald, Inc., a monopoly producer of 10-carat emeralds, to calculate the answers to parts a–d. Then answer part e.a. The demand scheduleb. The marginal revenue schedulec. The quantity effect component of marginal revenue per output leveld. The
2. Suppose the government is considering extending the length of a patent from 20 years to 30 years. How would this change each of the following?a. The incentive to invent new productsb. The length of time during which consumers have to pay higher prices 3. Explain the nature of the network
1. Currently, Texas Tea Oil Co. is the only local supplier of home heating oil in Frigid, Alaska. This winter residents were shocked that the price of a gallon of heating oil had doubled and believed that they were the victims of market power. Explain which of the following pieces of evidence
12. The accompanying table presents prices for washing and ironing a man’s shirt taken from a survey of California dry cleaners.a. What is the average price per shirt washed and ironed in Goleta? In Santa Barbara?b. Draw typical marginal cost and average total cost curves for California Cleaners
11. The production of agricultural products like wheat is one of the few examples of a perfectly competitive industry. In this question, we analyze results from a study released by the U.S. Department of Agriculture about wheat production in the United States back in 2013.a. The average variable
9. A new vaccine against a deadly disease has just been discovered. Presently, 55 people die from the disease each year. The new vaccine will save lives, but it is not completely safe. Some recipients of the shots will die from adverse reactions. The projected effects of the inoculation are given
8. A perfectly competitive firm has the following short-run total cost:Quantity TC 0 $5 1 10 2 13 3 18 4 25 5 34 6 45a. Calculate this firm’s marginal cost and, for all output levels except zero, the firm’s average variable cost and average total cost.b. There are 100 firms in this industry
7. The first sushi restaurant opens in town. Initially people are very cautious about eating tiny portions of raw fish, as this is a town where large portions of grilled meat have always been popular. Soon, however, an influential health report warns consumers against grilled meat and suggests that
6.a. A profit-maximizing business incurs an economic loss of $10,000 per year. Its fixed cost is $15,000 per year. Should it produce or shut down in the short run?Should it stay in the industry or exit in the long run?b. Suppose instead that this business has a fixed cost of $6,000 per year. Should
5. Consider again Bob’s Blu-ray company described in Problem 4.a. Draw Bob’s marginal cost curve.b. Over what range of prices will Bob produce no Blurays in the short run?c. Draw Bob’s individual supply curve. In your graph, plot the price range from $0 to $60 in increments of $10.
4. Consider Bob’s Blu-ray company described in Problem 4.Assume that Blu-ray production is a perfectly competitive industry. For each of the following questions, explain your answers.a. What is Bob’s break-even price? What is his shutdown price?b. Suppose the price of a Blu-ray is $2. What
3. Bob produces Blu-ray movies for sale, which requires a building and a machine that copies the original movie onto a Blu-ray. Bob rents a building for $30,000 per month and rents a machine for $20,000 a month. Those are his fixed costs. His variable cost per month is given in the accompanying
3. Why are some retailers responding by having manufacturers make exclusive versions of products for them? Is this trend likely to increase or diminish?
2. What effect is the introduction of mobile shopping apps having on competition in the retail market for electronics? On the profitability of brick-andmortar retailers like Best Buy? What, on average, will be the effect on the consumer surplus of purchasers of these items?
1. From the evidence in the case, what can you infer about whether or not the retail market for electronics satisfied the conditions for perfect competition before the advent of mobile-device comparison price shopping? What was the most important impediment to competition?
1. In each of the following situations, do you think the industry described will be perfectly competitive or not? Explain your answer.a. There are two producers of aluminum in the world, a good sold in many places.b. The price of natural gas is determined by global supply and demand. A small share
What determines the industry supply curve in both the short run and the long run
Why industries behave differently in the short run and the long run
How to assess whether or not a producer is profitable and why an unprofitable producer may continue to operate in the short run
How a price-taking producer determines its profit-maximizing quantity of output
What a perfectly competitive market is and the characteristics of a perfectly competitive industry
14. True or false? Explain your reasoning.a. The short-run average total cost can never be less than the long-run average total cost.b. The short-run average variable cost can never be less than the long-run average total cost.c. In the long run, choosing a higher level of fixed cost shifts the
13. Consider Don’s concrete-mixing business described in Problem 12. Assume that Don purchased 3 trucks, expecting to produce 40 orders per week.a. Suppose that, in the short run, business declines to 20 orders per week. What is Don’s average total cost per order in the short run? What will his
12. Don owns a small concrete-mixing company. His fixed cost is the cost of the concrete-batching machinery and his mixer trucks. His variable cost is the cost of the sand, gravel, and other inputs for producing concrete;the gas and maintenance for the machinery and trucks;and his workers. He is
11. In your economics class, each homework problem set is graded on the basis of a maximum score of 100. You have completed 9 out of 10 of the problem sets for the term, and your current average grade is 88. What range of grades for your 10th problem set will raise your overall average? What range
10. You produce widgets. Currently you produce four widgets at a total cost of $40.a. What is your average total cost?b. Suppose you could produce one more (the fifth)widget at a marginal cost of $5. If you do produce that fifth widget, what will your average total cost be? Has your average total
8. Evaluate each of the following statements. If a statement is true, explain why; if it is false, identify the mistake and try to correct it.a. A decreasing marginal product tells us that marginal cost must be rising.b. An increase in fixed cost increases the minimumcost output.c. An increase in
7. You have the information shown in the accompanying table about a firm’s costs. Complete the missing data.Quantity of output TC MC ATC AVC 0 $20 — —$20 1 ? ? ?10 2 ? ? ?16 3 ? ? ?20 4 ? ? ?24 5 ? ? ?
6. Magnificent Blooms is a florist specializing in floral arrangements for weddings, graduations, and other events. Magnificent Blooms has a fixed cost associated with space and equipment of $100 per day. Each worker is paid $50 per day. The daily production function for Magnificent Blooms is shown
5. Labor costs represent a large percentage of total costs for many firms. According to data from the Bureau of Labor Statistics, U.S. labor costs were up 0.8% in 2013, compared to 2012.a. When labor costs increase, what happens to average total cost and marginal cost? Consider a case in which
4. The production function for Marty’s Frozen Yogurt is given in Problem 2. The costs are given in Problem 3.a. For each of the given levels of output, calculate the average fixed cost (AFC), average variable cost(AVC), and average total cost (ATC) per cup of frozen yogurt.b. On one diagram, draw
3. The production function for Marty’s Frozen Yogurt is given in Problem 2. Marty pays each of his workers$80 per day. The cost of his other variable inputs is$0.50 per cup of yogurt. His fixed cost is $100 per day.a. What is Marty’s variable cost and total cost when he produces 110 cups of
2. Marty’s Frozen Yogurt is a small shop that sells cups of frozen yogurt in a university town. Marty owns three frozen-yogurt machines. His other inputs are refrigerators, frozen-yogurt mix, cups, sprinkle toppings, and, of course, workers. He estimates that his daily production function when he
1. Changes in the price of key commodities have a significant impact on a company’s bottom line. For virtually all companies, the price of energy is a substantial portion of their costs. In addition, many industries—such as those that produce beef, chicken, high-fructose corn syrup and
3. How would a “robot-for-hire” program affect your answer to Question 2?Explain.
2. Predict the pattern of off-holiday sales versus holiday sales that would induce a retailer to keep a human-based system. Predict the pattern that would induce a retailer to move to a robotic system.
1. Assume that a firm can sell a robot, but that the sale takes time and the firm is likely to get less than what it paid. Other things equal, which system, human-based or robotic, will have a higher fixed cost? Which will have a higher variable cost? Explain.
1. The accompanying table shows three possible combinations of fixed cost and average variable cost. Average variable cost is constant in this example (it does not vary with the quantity of output produced).a. For each of the three choices, calculate the average total cost of producing 12,000,
1. Alicia’s Apple Pies is a roadside business. Alicia must pay $9.00 in rent each day. In addition, it costs her $1.00 to produce the first pie of the day, and each subsequent pie costs 50% more to produce than the one before. For example, the second pie costs $1.00 × 1.5 = $1.50 to produce, and
1. Bernie’s ice-making company produces ice cubes using a 10-ton machine and electricity. The quantity of output, measured in terms of pounds of ice, is given in the accompanying table.a. What is the fixed input? What is the variable input?b. Construct a table showing the marginal product of the
16. The Japanese Ministry of Internal Affairs and Communications collects data on the prices of goods and services in the Ku-area of Tokyo, as well as data on the average Japanese household’s monthly income. The accompanying table shows some of this data. (¥ denotes the Japanese currency the
15. Carmen consumes nothing but cafeteria meals and music albums. Her indifference curves exhibit the four general properties of indifference curves. Cafeteria meals cost $5 each, and albums cost $10. Carmen has$50 to spend.a. Draw Carmen’s budget line and an indifference curve that illustrates
8. Ralph and Lauren are talking about how much they like going to the gym and how much they like eating out at their favorite restaurant and they regularly do some of each. A session at the gym costs the same as a meal at the restaurant. Ralph says that, for his current consumption of gym sessions
6. Kory has an income of $50, which she can spend on two goods: music albums and cups of hot chocolate. Both are normal goods for her. Each album costs $10, and each cup of hot chocolate costs $2. For each of the following situations, decide whether this is Kory’s optimal consumption bundle. If
3. The four properties of indifference curves for ordinary goods illustrated in Figure 10A-4 rule out certain indifference curves. Determine whether those general properties allow each of the following indifference curves. If not, state which of the general principles rules out the
14. According to data from the U.S. Department of Energy, the average retail price of regular gasoline rose from$1.16 in 1990 to $3.24 in 2012, a 180% increase.a. Other things equal, describe the effect of this price increase on the quantity of gasoline demanded. In your explanation, make use of
7. Damien Matthews is a busy actor. He allocates his free time to watching movies and working out at the gym.The accompanying table shows his utility from the number of times per week he watches a movie or goes to the gym.Quantity of gym visits per week Utility from gym visits(utils)Quantity of
6. Cal “Cool” Cooper has $200 to spend on cell phones and sunglasses.a. Each cell phone costs $100 and each pair of sunglasses costs $50. Which bundles lie on Cal’s budget line? Draw a diagram like Figure 10-4 in which both the marginal utility per dollar spent on cell phones and the marginal
4. Bruno, the consumer in Problem 3, is best friends with Bernie, who shares his love for notebooks and BeyoncéMP3s. The accompanying table shows Bernie’s utilities from notebooks and Beyoncé MP3s.Quantity of Notebooks Utility from Notebooks(utils)Quantity of MP3s Utility from MP3s(utils)0 0 0
3. Bruno can spend his income on two different goods:Beyoncé MP3s and notebooks for his class notes. For each of the following three situations, decide if the given consumption bundle is within Bruno’s consumption possibilities. Then decide if it lies on the budget line or not.a. MP3s cost $2
1. For each of the following situations, decide whether Al has diminishing marginal utility. Explain.a. The more economics classes Al takes, the more he enjoys the subject. And the more classes he takes, the easier each one gets, making him enjoy each additional class even more than the one
3. What do you think accounts for McDonald’s success? Relate this to concepts discussed in the chapter.
2. To induce fast-food customers to eat more healthful meals, what alternatives are there to bans? Do you think these alternatives would work? Why or why not?
1. Give an example of a normal good and an inferior good mentioned in this case. Cite examples of substitution effects and income effects from the case.
2. In the example described in Question 1c, how would you determine whether or not cafeteria meals are a Giffen good?
1. In each of the following cases, state whether the income effect, the substitution effect, or both are significant. In which cases do they move in the same direction?In opposite directions? Why?a. Orange juice represents a small share of Clare’s spending. She buys more lemonade and less orange
3. In each of the following cases, determine if the consumer experiences diminishing marginal utility. Explain your answer.a. The more Mabel exercises, the more she enjoys each additional visit to the gym.b. Although Mei’s classical music collection is huge, her enjoyment from buying another
2. You have won the state lottery. There are two ways in which you can receive your prize. You can either have$1 million in cash now, or you can have $1.2 million that is paid out as follows: $300,000 now, $300,000 in one year’s time, $300,000 in two years’ time, and$300,000 in three years’
11. In each of the following examples, explain whether the decision is rational or irrational. Describe the type of behavior exhibited.a. Kookie’s best friend likes to give her gift cards that Kookie can use at her favorite stores. Kookie, however, often forgets to use the cards before their

Showing 700 - 800 of 1190

Economics 4th Edition Paul Krugman, Robin Wells - Solutions

Step by Step Answers