Essentials Of Economics 4th Edition R. Glenn Hubbard, Anthony P. O'Brien - Solutions

[Related to Making the connection 10.1] Over time, the gap between the wages of workers with a tertiary degree and the wages of workers without a tertiary degree has been increasing. Shouldn’t this gap have increased the incentive for workers to earn a degree, thereby increasing the supply of
The Australian labour supply has grown by millions in the past 50 years. As the supply of labour has been increasing, why haven’t wages decreased and instead have increased?
If the labour supply curve shifts to the left and the labour demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
If the labour demand curve shifts to the left and the labour supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? Illustrate your answer with a graph.
State whether each of the following events will result in a movement along the market supply curve of agricultural labour in Australia or whether it will cause the market supply curve of labour to shift. If the supply curve shifts, indicate whether it will shift to the left or to the right and draw
The proportion of the Australian population that is over the age of 65 years is increasing. What is the likely effect of the ageing of the population on the supply curve for labour?
Many labour economists believe that many adult males are on a vertical section of their labour supply curves.Use the concepts of income and substitution effects to explain under what circumstances an individual’s labour supply curve would be vertical.
Danielle was earning $65 per hour and working 45 hours per week. Then Danielle’s wage rose to $75 per hour, and as a result she 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 Danielle?
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 labour usually upward sloping?
State whether each of the following events will result in a movement along the market demand curve for labour in electronics factories in China or whether it will cause the market demand curve for labour to shift. If the demand curve shifts, indicate whether it will shift to the left or to the
[Related to Solved problem 10.1] Fill in the blanks in the table below for Tommy’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 10.1 that shows
Fran owns an apple orchard. She employs 87 apple pickers and pays them $20 per hour to pick apples, which she sells for $2 per box. If Fran is maximising profits, what is the marginal revenue product of the last worker she hired? What is that worker’s marginal product?
What is the difference between the marginal product of labour and the marginal revenue product of labour?
In what sense is the demand for labour a derived demand?
Twelve countries that export natural gas have begun meeting at forums to discuss forming a cartel modelled on the OPEC oil cartel. In 2017, Bolivia hosted the fourth Gas-Exporting Countries Forum (GECF) Technical and Economic Council Meeting. Member countries together own almost 70 per cent of the
Consider two oligopolistic industries. In the first industry, firms always match price changes by any other firm in the industry. In the second industry, firms always ignore price changes by any other firm. In which industry are firms likely to charge higher prices?Briefly explain.
Finding dominant strategies is often a very effective way of analysing a game. Consider the following game:Microsoft and Apple are the two firms in the market for operating systems; each firm has two strategies—charge a high price or charge a low price.a What (if any) is the dominant strategy for
[Related to Making the connection 9.2] We made the argument that a bidder on an eBay auction has a dominant strategy of bidding only once, with that bid being the maximum the bidder would be willing to pay.a Is it possible that a bidder might receive useful information during the auction,
[Related to Don’t let this happen to you on page 268] A student argues, ‘The prisoners’ 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 player will cooperate, then the
[Related to Solved problem 9.3] Suppose that Big W and Kmart are competing on whether to stick with barcodes or switch to radio frequency identification (RFID) tags to monitor the flow of products. Because many suppliers sell to both Big W and Kmart, it is much less costly for suppliers to use one
[Related to Solved problem 9.3] Suppose, hypothetically, that two companies—Build It Big and Artistic Angles—are bidding for a construction project with the government.Each firm is deciding whether to bid either $4 million or$5 million. (Remember that in this type of bidding, the winning bid is
[Related to Solved problem 9.3] Would a ban on advertising beer on television be likely to increase or decrease the profits of beer companies? Briefly explain.
World War I began in August 1914. On the Western Front, the war quickly bogged down into trench warfare. In Belgium and northern France, British and French troops were dug into trenches facing German troops a few hundred yards away. The troops continued firing back and forth until a remarkable
Soldiers in battle may face a prisoners’ dilemma. If all soldiers stand and fight, the chance that the soldiers as a unit will survive is maximised. If there is a significant chance that the soldiers will lose the battle, an individual soldier may maximise their chance of survival by running away
Since the late twentieth century, professional sports players have become significantly stronger and more muscular. Some of the increased strength gained has come from more weight training and better conditioning and diet.Some commentators, though, believe that some of the increased strength has
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. Bob is also told that he will serve a 15-year sentence if he remains silent while Tom confesses. If
How is the result of the prisoners’ dilemma changed in a repeated game?
What is the difference between explicit collusion and implicit collusion? Give an example of each.
Why do economists refer to the pricing strategies of oligopoly firms as a prisoners’ dilemma game?
A historical account of the development of the cotton textile industry in England argues the following:The cotton textile industry was shaped by ruthless competition. Rapid growth in demand, low barriers to entry, frequent technological innovations, and a high rate of firm bankruptcy all combined
The following figure contains two long-run average cost curves. Briefly explain which cost curve would be most likely to be associated with an oligopoly and which would be most likely to be associated with a perfectly competitive industry. Price LRAC LRAC 0 Quantity
The following figure illustrates the average total cost (ATC)curves for two car manufacturing firms: LittleAuto and BigAuto. Under which conditions would you expect to see the market comprised of firms like LittleAuto and under which conditions would you expect to see the market dominated by firms
Many entrepreneurs have tried, and often failed, to make businesses that are naturally small-scale operations into large-scale businesses. What advantage would entrepreneurs expect to gain from creating big businesses? Why would they be unsuccessful in doing so with naturally small-scale
In 2009, some analysts of the smartphone industry argued that Apple would be likely to offer a variety of iPhones, each with different features. One observer objected to this argument, though, arguing:Selling models differentiated by hardware seems unlikely.Different iPhones with very different
Michael Porter has argued: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 structure.(Porter, 1980)4 What does Porter mean by ‘economic structure’? What factors, other than
What do barriers to entry have to do with the extent of competition, or lack thereof, in an industry? What are the most important barriers to entry?
Before the fall of communism, most basic consumer products in Eastern Europe and the Soviet Union were standardised. For example, government-run stores would offer for sale only one type of soap or one type of toothpaste. Soviet economists often argued that this system of standardising basic
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 determination.b Does the graph show a short-run equilibrium or a longrun equilibrium? Briefly explain.c What
A student makes the following comment:I can understand why a perfectly competitive firm will not earn economic profit in the long run because a perfectly competitive firm charges a price equal to marginal cost. But a monopolistically competitive firm can charge a price greater than marginal cost,
Does the fact that monopolistically competitive markets are not allocatively or productively efficient mean that there is a significant loss in economic wellbeing to society in these markets? In your answer make sure you define what you mean by ‘economic wellbeing’.
What are the differences between the long-run equilibrium of a perfectly competitive firm and the longrun equilibrium of a monopolistically competitive firm?
[Related to Solved problem 9.2] 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 favourable to the chain’s profitability: the chain’s ‘greater pricing power allows them
[Related to the opening case] Many firms that make differentiated consumer products devote significant resources to developing new products and differentiating their products from those of their competitors. Suppose that The Coffee Club cafés decided to eliminate this spending.What would be the
A bookshop owner commented on the many books that become bestsellers by promising to give readers financial advice that will make them wealthy. However, the same owner commented that while an author might become rich by writing a book, he has yet to meet anyone who became rich from buying a book.
Briefly explain why high levels of competition in some industries are good for consumers but could be bad for the shareholders who own firms in these industries.
[Related to Don’t let this happen to you on page 281]A student remarks:If firms in a monopolistically competitive industry are earning economic profits, new firms will enter the industry. Eventually, the representative firm will find that its demand curve has shifted to the left until it is just
Suppose Angelica opens a small food outlet on a university campus, selling sandwiches. Use the following graph which shows the demand and cost for Angelica’s sandwiches, to answer the questions that follow.a If Angelica wants to maximise profit, how many sandwiches should she sell per day, and
Is it possible for a monopolistically competitive firm to continue to earn economic profits as new firms enter the market?
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?
In 1916 the Ford Motor Company produced 500 000 Model T Fords at a price of $440. The company made a profit of $60 000 000 that year. Henry Ford told a newspaper reporter that he intended to reduce the price of the Model T to $360 and he expected to be able to sell 800 000 cars at that price. Ford
William Germano previously served as vice president and publishing director at the Routledge publishing company.He once gave the following description of how a publisher might deal with an unexpected increase in the cost of publishing a book:It’s often asked why the publisher can’t simply raise
Briefly explain how it is possible for a firm’s revenue to increase at the same time as its profit decreases. Use a graph to illustrate your example.
[Related to Solved problem 9.1] Suppose a firm producing table lamps has the following costs:Ben and Jerry are managers at the company and they have this discussion:Ben: We should produce 4000 lamps per month because that will minimise our average costs.Jerry: But shouldn’t we maximise profit
Maria manages a bakery that specialises in ciabatta bread. She has the following information on demand and costs:a To maximise profit, how many loaves of ciabatta bread should Maria sell per hour, what price should she charge, and how much profit will she make?b What is the marginal revenue
Stephen runs a pet salon. He is currently grooming 125 dogs per week. If he grooms 126 dogs, instead of 125, he will add $68.50 to his costs and $60.00 to his revenue.What will be the effect on his profit of grooming 126 dogs instead of 125 dogs?
Why doesn’t a monopolistically competitive firm produce where price equals marginal cost as a perfectly competitive firm does?
Sally runs a vegetable shop. She is selling 100 kilograms of tomatoes per day at a price of $3.75 per kilogram. If she lowers the price to $3.70, she will sell 101 kilograms of tomatoes. What is the marginal revenue of the 101st kilogram of tomatoes?
In the following graph, consider the marginal revenue of the eleventh unit sold. When the firm cuts the price from$5.00 to $4.75 to sell the eleventh unit, what area in the graph denotes the output effect, and what is the dollar value of the output effect? What area in the graph denotes the price
There are many wheat farms in the world, but there are also many Coffee Club cafés. Why, then, does a Coffee Club café face a downward-sloping demand curve while a wheat farmer faces a horizontal demand curve?
A student makes the following argutment:When a firm sells another unit of a good, the additional revenue the firm receives is equal to the price: if the price is$10, then the additional revenue is also $10. Therefore, this chapter is incorrect when it says that marginal revenue is less than price
Complete the following table, which shows the weekly demand for movie rental downloads. MARGINAL MOVIES DOWNLOADED TOTAL AVERAGE REVENUE PRICE REVENUE REVENUE (MR = PER WEEK (Q) (P) (TR=PxQ) (AR = TR/Q) ATR/AQ) 0 $8.00 1 7.50 2 7.00 3 6.50 4 6.00 5 5.50 6 5.00 7 4.50 8 4.00
Purell claims that the new chemical formula for its hand sanitiser is so effective that ‘1 squirt of Purell Advanced Hand Sanitizer equals 2 squirts of other national brands’(Purell, 2018).1 If Purell succeeds in convincing consumers that its claim is correct, would its demand curve become more
With a downward-sloping demand curve, why is average revenue equal to price? Why is marginal revenue less than price?
Why does the local McDonald’s face a downward-sloping demand curve for Big Macs? If it raises the price it charges for Big Macs above the prices charged by other McDonald’s, will it lose all its customers?
What are the most important differences between perfectly competitive markets and monopolistically competitive markets? Give two examples of products sold in perfectly competitive markets and two examples of products sold in monopolistically competitive markets.
Draw a graph showing producer surplus, consumer surplus and deadweight loss (if any) in a market where the seller practises perfect price discrimination. Profitmaximising firms select an output at which marginal cost equals marginal revenue. Where is the marginal revenue curve in this graph? Price
[Related to Solved problem 8A.1] In addition to discounting the price of computers purchased by students, Apple sells certain computer models only to schools and universities. Is Apple engaging in price discrimination in following this policy? If so, why does it prepare special models for
[Related to Solved problem 8A.1] Use the graphs on page 246 to answer the following questions.a If the firm wants to maximise profits, what price will it charge in market 1 and what quantity will it sell?b If the firm wants to maximise profits, what price will it charge in market 2 and what
Suppose a theme park charges a lower admission price for children under 16 years of age than for adults. Why does it categorise a 16-year-old as an adult for this purpose? Why would it admit children under three years of age free of charge?
Can a firm in a perfectly competitive industry practise price discrimination? Briefly explain.
Suppose Victoria has many apple trees and the price of apples is low. The Northern Territory has few apple trees and the price of apples is high. John buys lowpriced Victorian apples and ships them to Darwin, where he resells them at a high price. Is John exploiting Northern Territory consumers by
Is it possible to practise price discrimination across time? Briefly explain.
What is perfect price discrimination? Is it ever likely to occur? Explain. Is perfect price discrimination economically efficient? Explain.
Suppose during a particular week the airline company Virgin Australia charged $198 for a return-trip ticket on a flight from Sydney to Melbourne, provided the ticket was purchased well in advance. If the buyer did not meet these conditions, the price for the ticket was$860. Why would Virgin
What is price discrimination? Under what circumstances can a firm successfully practise price discrimination?
Telstra has, at times, argued that it has little incentive to invest billions of dollars in new telecommunications infrastructure if it is forced by the ACCC to allow its competitors access to it. Similar arguments have been put forward by mining companies when developing railway infrastructure and
[Related to Solved problem 8.2] 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:Briefly explain whether this firm has a natural monopoly in this market. QUANTITY (PER DAY) TOTAL COST 30
Draw a graph like that in Figure 8.6. On your graph show producer surplus and consumer surplus before a merger, and consumer surplus and producer surplus after a merger.
[Related to Solved problem 8.2] Use the following graph for a monopoly to answer the questions that follow.a What quantity will the monopoly produce, and what price will the monopoly charge?b Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, what
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?
What is the difference between a horizontal merger and a vertical merger? Which type of merger is more likely to increase the market power of the newly merged firm?
What is the purpose of trade practices laws? Who is in charge of enforcing them in Australia?
[Related to Solved problem 8.2] States and territories in Australia all have monopoly-operated water companies that provide water to homes and businesses. Water pricing could be done either by charging a flat monthly fee, or water could be charged by the kilolitre. Which method of pricing do you
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
Review Figure 8.5 on the inefficiency of monopoly. Will the deadweight loss due to monopoly be larger if the demand is more or less elastic? Briefly explain.
Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power for the economy large or small?
Suppose that a perfectly competitive industry becomes a monopoly. Describe the effects of this change on consumer surplus, producer surplus and deadweight loss.
Will a monopoly that maximises profit also be maximising revenue? Will it be maximising production? Briefly explain.
[Related to Don’t let this happen to you] Discuss whether you agree or disagree with the following statement: ‘A monopolist maximises profit by charging the highest price at which it can sell any of the good at all.’
[Related to Don’t let this happen to you] A student argues: ‘If a monopoly firm finds a way of producing a good at lower cost, it will not lower its price. Because it is a monopolist, it will keep the price and the quantity the same and just increase its profit.’ Do you agree? Use a graph to
Does a monopolist have a supply curve? Briefly explain.(Hint: Look again at the definition of a supply curve in Chapter 3 and consider whether this applies to a monopolist.)
[Related to Solved problem 8.1] Use the information in Solved problem 8.1 to answer the following questions.a What will Foxtel do if the tax is $6.00 per month instead of $2.50? (Hint: Will its decision be different in the long run from that in the short run?)b Suppose that the flat per-month tax
[Related to Solved problem 8.1] Ted has acquired a monopoly in the production of cricket balls (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 Ted wants to maximise profit, what price should he charge and how
Draw a graph showing a monopolist earning economic profit. Make sure your diagram includes the monopolist’s demand, marginal revenue, average total cost and marginal cost curves. Make sure you indicate the profitmaximising level of output and price.
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?
[Related to Making the connection 8.2] Why was De Beers worried that people might resell their old diamonds? How did De Beers attempt to convince consumers that used diamonds were not good substitutes for new diamonds? How did De Beers’strategy affect the demand for new diamonds? How were De
The German company Koenig and Bauer has more than 90 per cent of the world market for presses that print currency. Discuss the factors that would make it difficult for new companies to enter this market.
Just as a new product or a new method of making a product receives patent protection from the government, so books, articles and essays receive copyright protection. Under Australian law, authors have the exclusive right to their writings during their lifetimes—unless they sell this right, as
Patents are normally granted for 20 years in Australia, but pharmaceutical companies can’t use their patentguaranteed monopoly powers for anywhere near this long because it takes several years to acquire approval of drugs. Therefore, in Australia, pharmaceutical companies can apply for a
In many countries, the letter postal service is a monopoly because the government has blocked entry into the market for the delivery of letters. Is it also a natural monopoly? How can we tell? What would happen if laws preventing competition in this market were removed?

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Essentials Of Economics 4th Edition R. Glenn Hubbard, Anthony P. O'Brien - Solutions

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