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Principles Of Economics 2nd Edition Steven A. Greenlaw: University Of Mary Washington, David Shapiro: Pennsylvania State University - Solutions
What are the three problems that economists have noted with regard to command-and-control regulation?
What is command-and-control environmental regulation?
In a market without environmental regulations, will the supply curve for a firm take into account private costs, external costs, both, or neither? Explain.
What is the difference between private costs and social costs?
Give an example of a positive externality and an example of a negative externality.
What is an externality?
A country called Sherwood is very heavily covered with a forest of 50,000 trees. There are proposals to clear some of Sherwood’s forest and grow corn, but obtaining this additional economic output will have an environmental cost from reducing the number of trees. Table 12.11 shows possible
Consider the case of global environmental problems that spill across international borders as a prisoner’s dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries, A and B. Each country can choose whether to protect the environment, at a cost of 10,
The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table 12.9 shows the total cost and total benefits (in dollars) of this policya. Calculate the marginal cost and the marginal benefit at
Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table 12.8 shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits include environmental, recreational, health, and industrial benefits.)
The rows in Table 12.7 show three market-oriented tools for reducing pollution. The columns of the table show three complaints about command-and-control regulation. Fill in the table by stating briefly how each market-oriented tool addresses each of the three concerns.
Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of Table 12.6 shows the total amount of garbage (in tons) currently produced by each firm. The other rows
An emissions tax on a quantity of emissions from a firm is not a command-and-control approach to reducing pollution. Why?
Classify the following pollution-control policies as command-and-control or market incentive based.a. A state emissions tax on the quantity of carbon emitted by each firm.b. The federal government requires domestic auto companies to improve car emissions by 2020.c. The EPA sets national standards
Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermined technologies. In the second approach, the U.S. government determines which
The supply and demand conditions for a manufacturing firm are given in Table 12.5. The third column represents a supply curve without taking the social cost of pollution into account. The fourth column represents the supply curve when the firm is required to take the social cost of pollution into
For each of your answers to Exercise 12.2, will equilibrium price rise or fall or stay the same?
Identify whether the market supply curve will shift right or left or will stay the same for the following:a. Firms in an industry are required to pay a fine for their emissions of carbon dioxide.b. Companies are sued for polluting the water in a river.c. Power plants in a specific city are not
Identify the following situations as an example of a negative or a positive externality:a. You are a birder (bird watcher), and your neighbor has put up several birdhouses in the yard as well as planting trees and flowers that attract birds.b. Your neighbor paints his house a hideous color.c.
If the transit system was regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge?What subsidy would be necessary to insure this efficient provision of transit services?
If the transit system was regulated to operate with no subsidy (i.e., at zero economic profit), what approximate output would it supply and what approximate price would it charge?
If the transit system was allowed to operate as an unregulated monopoly, what output would it supply and what price would it charge?
Use Table 11.5 and Table 11.6 to calculate the Herfindal-Hirschman Index for the U.S. auto market.Would the FTC approve a merger between GM and Ford?
Use Table 11.5 to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not?
Do you think it is possible for government to outlaw everything that businesses could do wrong? If so, why does government not do that? If not, how can regulation stay ahead of rogue businesses that push the limits of the system until it breaks?
Deregulation, like all changes in government policy, always has pluses and minuses. What do you think some of the minuses might be for airline deregulation?
Why are urban areas willing to subsidize urban transit systems? Does the argument for subsidies make sense to you?
In the middle of the twentieth century, major U.S.cities had multiple competing city bus companies.Today, there is usually only one and it runs as a subsidized, regulated monopoly. What do you suppose caused the change?
If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully?
Can you think of any examples of successful predatory pricing in the real world?
What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?
Does either the four-firm concentration ratio or the HHI directly measure the amount of competition in an industry? Why or why not?
Why does regulatory capture reduce the persuasiveness of the case for regulating industries for the benefit of consumers?
What is regulatory capture?
What is deregulation? Name some industries that have been deregulated in the United States.
What is price cap regulation?
What is cost-plus regulation?
If public utilities are a natural monopoly, what would be the danger in splitting them up into a number of separate competing firms?
If public utilities are a natural monopoly, what would be the danger in deregulating them?
What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?
What is a tie-in sale? How might it reduce competition and when might it be acceptable?
What is exclusive dealing? How might it reduce competition and when might it be acceptable?
What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?
Why can it be difficult to decide what a “market” is for purposes of measuring competition?
How is a Herfindahl-Hirshman Index measured?What does a low measure mean about the extent of competition?
How is a four-firm concentration ratio measured?What does a high measure mean about the extent of competition?
What is the goal of antitrust policies?
What is a corporate merger? What is an acquisition?
What might some of the negatives of deregulation be?
What are some of the benefits of the deregulation?
What real world changes made the deregulation possible?
From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly?Justify.Use the following information to answer the next three questions. In the years before wireless phones, when telephone technology required having a wire running to every home, it seemed
Urban transit systems, especially those with rail systems, typically experience significant economies of scale in operation. Consider the transit system whose data is given in the Table 11.4. Note that the quantity is in millions of riders.
Why would a firm choose to use one or more of the anticompetitive practices described in Regulating Anticompetitive Behavior?
As a result of globalization and new information and communications technology, would you expect that the definitions of markets used by antitrust authorities will become broader or narrower?
Some years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was “the market for intercity bus service.” Another possible definition was “the market for intercity transportation,
Is it true that the four-firm concentration ratio puts more emphasis on one or two very large firms, while the Herfindahl-Hirshman Index puts more emphasis on all the firms in the entire market? Explain briefly.
Is it true that both the four-firm concentration ratio and the Herfindahl-Hirshman Index can be affected by a merger between two firms that are not already in the top four by size? Explain briefly.
Jane and Bill are apprehended for a bank robbery.They are taken into separate rooms and questioned by the police about their involvement in the crime. The police tell them each that if they confess and turn the other person in, they will receive a lighter sentence. If they both confess, they will
Mary and Raj are the only two growers who provide organically grown corn to a local grocery store.They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower
Andrea’s Day Spa began to offer a relaxing aromatherapy treatment. The firm asks you how much to charge to maximize profits. The demand curve for the treatments is given by the first two columns in Table 10.5; its total costs are given in the third column. For each level of output, calculate
When OPEC raised the price of oil dramatically in the mid-1970s, experts said it was unlikely that the cartel could stay together over the long term—that the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC
Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum?What if each firm produces a somewhat different product? Explain your reasoning.
Would you rather have efficiency or variety? That is, one opportunity cost of the variety of products we have is that each product costs more per unit than if there were only one kind of product of a given type, like shoes. Perhaps a better question is, “What is the right amount of variety? Can
Make a case for why monopolistically competitive industries never reach long-run equilibrium.
Aside from advertising, how can monopolistically competitive firms increase demand for their products?
What stops oligopolists from acting together as a monopolist and earning the highest possible level of profits?
Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing selfinterest? Explain briefly.
Will the firms in an oligopoly act more like a monopoly or more like competitors? Briefly explain.
Is a monopolistically competitive firm productively efficient? Is it allocatively efficient? Why or why not?
If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?
How can a monopolistic competitor tell whether the price it is charging will cause the firm to earn profits or experience losses?
How does a monopolistic competitor choose its profit-maximizing quantity of output and price?
How is the perceived demand curve for a monopolistically competitive firm different from the perceived demand curve for a monopoly or a perfectly competitive firm?
What is the relationship between product differentiation and monopolistic competition?
Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm(Firm A) is large and the other firm (Firm B) is small, as shown in the prisoner’s dilemma box in Table 10.4.
Consider the curve shown in Figure 10.6, which shows the market demand, marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs.a. Suppose the firms collude to form a cartel. What price will the cartel charge? What
Continuing with the scenario outlined in question 1, in the long run, the positive economic profits earned by the monopolistic competitor will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the
Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies?
Draw a monopolist’s demand curve, marginal revenue, and marginal cost curves. Identify the monopolist’s profit-maximizing output level. Now, think about a slightly higher level of output (say Q0 + 1).According to the graph, is there any consumer willing to pay more than the marginal cost of
Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the monopoly’s product increases dramatically. Draw the new demand curve. What happens to the
Return to Figure 9.2. Suppose P0 is $10 and P1 is$11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000 units of output. Estimate from the graph what the new firm’s average cost of producing output would be.If the incumbent continues to
If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?
Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you go ahead and challenge the monopolist, what
Intellectual property laws are intended to promote innovation, but some economists, such as Milton Friedman, have argued that such laws are not desirable.In the United States, there is no intellectual property protection for food recipes or for fashion designs.Considering the state of these two
For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global market, where U.S. firms compete with firms from other countries, would this policy make
Why are generic pharmaceuticals significantly cheaper than name brand ones?
ALCOA does not have the monopoly power it once had. How do you suppose their barriers to entry were weakened?
How does the quantity produced and price charged by a monopolist compare to that of a perfectly competitive firm?
Is a monopolist allocatively efficient? Why or why not?
When a monopolist identifies its profit-maximizing quantity of output, how does it decide what price to charge?
How can a monopolist identify the profitmaximizing level of output if it knows its marginal revenue and marginal costs?
How can a monopolist identify the profitmaximizing level of output if it knows its total revenue and total cost curves?
What is the usual shape of a marginal revenue curve for a monopolist? Why?
What is the usual shape of a total revenue curve for a monopolist? Why?
Is a monopolist a price taker? Explain briefly.
How does the demand curve perceived by a monopolist compare with the market demand curve?
How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?
In what sense is a natural monopoly “natural”?
By what legal mechanisms is intellectual property protected?
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