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

What are the four most important ways a firm becomes a monopoly?
Why is access to YouTube by other search engines such as Yahoo relevant to the question of whether Google has a monopoly in the Internet search engine market?
A newspaper article has the headline ‘Google says it’s actually quite small’. According to the article:Google rejects the idea that it’s in the search advertising business, an industry in which it holds more than a 70 per cent share of revenue. Instead, the company says its competition is
Are there any products for which there are no substitutes? Are these the only products for which it would be possible to have a monopoly? Briefly explain.
[Related to the opening case] Some observers say that recent changes in the industry will erode the monopoly power of pay TV companies. What are these changes?Will ‘monopoly’ firms still have monopoly power in this industry?
Do you think that ‘monopoly’ is a good name for the board game Monopoly? What aspects of the game involve monopoly? Explain briefly using the definition of monopoly.
If you own the only hardware shop in a small town, do you have a monopoly?
Can a firm be a monopoly if close substitutes for its product exist?
What is a monopoly?
Over many years, Sony Corporation has lost money selling televisions. Given the strong consumer demand for LCD and LED televisions, shouldn’t Sony have been able to raise prices to earn a profit? Briefly explain.
[Related to Solved problem 7.3] Suppose you read the following item in a newspaper article under the headline‘Price gouging alleged in pencil market’:Consumer advocacy groups asserted at a recent press conference that there is widespread price gouging (excessively high pricing) in the sale of
[Related to Solved problem 7.3] Discuss the following statement: ‘In a perfectly competitive market, in the long run consumers benefit from reductions in costs, but firms don’t.’ Don’t firms also benefit from cost reductions because they are able to earn greater profits?
The chapter states, ‘Firms will supply all those goods that provide consumers with a marginal benefit at least as great as the marginal cost of producing them.’ A student objects to this statement and argues, ‘I doubt that firms will really do this. After all, firms are in business to make a
How does perfect competition lead to allocative, productive and dynamic efficiency?
What is meant by allocative efficiency, productive efficiency and dynamic efficiency? Briefly discuss the difference between these concepts.
[Related to the opening case] If in the long run, drivers who provide ride-sharing services make no greater rate of return on their investment than taxi drivers, why did a significant number of taxi drivers switch to driving for Uber?
Assume that the laptop computer industry is perfectly competitive and that the firms that assemble laptops do not also make the displays for them. Assume that the laptop display industry is also perfectly competitive.Suppose that because the demand for laptop displays is currently relatively small,
An economics student makes the following remark: ‘The economic model of perfectly competitive markets is fine in theory but not very realistic. It predicts that in the long run, a firm in a perfectly competitive market will earn no profit. No firm in the real world would stay in business if it
Consider the following statement: ‘The products for which demand is the greatest will also be the products that are most profitable to produce.’ Briefly explain whether you agree with this statement.
Suppose a lecturer in economics is earning a salary of$75 000 per year. One day she quits her job, sells$100 000 worth of bonds that had been earning 5 per cent per year, and uses the funds to open a bookshop. At the end of the year she shows an accounting profit of $90 000 on her income tax
Discuss the shape of the long-run supply curve in a perfectly competitive market. Suppose that a perfectly competitive market is initially at long-run equilibrium and then there is a permanent decrease in the demand for the product. Draw a graph showing how the market adjusts in the long run.
Would a firm earning zero economic profit continue to produce, even in the long run?
[Related to Solved problem 7.2] In recent years, some shopping malls and shopping centres have been experiencing problems in retaining stores. Some stores that were losing money stayed on, but only until the end of their lease. If the owner of a store that leases space in a mall or shopping centre
Suppose you decide to open a digital-photo printing store.You rent store space (signing a one-year lease) and you take out a loan with a bank and use the money to purchase 10 digital-photo printing machines. Six months later, a large chain opens a photo-printing store two blocks away from yours. As
The following graph represents the situation of a perfectly competitive firm. Indicate on the graph the areas that represent:a Total cost b Total revenue c Variable cost d Profit or loss Briefly explain whether the firm will continue to produce in the short run. Price and MC cost ATC AVC P D=MR 0 Q
Assume that Harry Ellis produces table lamps in the perfectly competitive table lamp market.a Fill in the missing values in the following table.b Suppose the equilibrium price in the table lamp market is $50. How many table lamps should Harry produce, and how much profit will he make?c If next week
How is the market supply curve derived from the supply curves of individual firms?
What is the relationship between a perfectly competitive firm’s marginal cost curve and its supply curve?
What is the difference between the firm’s shutdown point in the short run and in the long run? Why are firms willing to accept losses in the short run but not in the long run?
[Related to Don’t let this happen to you on page 193]A student examines the following graph and argues,‘I believe that a firm will want to produce at Q1, not Q2.At Q1, the distance between price and marginal cost is the greatest. Therefore, at Q1, the firm will be maximising its profits.’
[Related to Making the connection 7.1] Suppose that solar panel firms had run an effective advertising campaign that convinced a large number of people that buying a solar system ‘saves the environment’. How would this have changed the fortunes of these firms? Illustrate your answer with a
[Related to Solved problem 7.1] Review Solved problem 7.1 and then answer the following. Suppose the equilibrium price of candles falls to $2.50. Now how many candles will Diane produce? What price will she charge? How much profit (or loss) will she make?
[Related to Solved problem 7.1] Assume that Frances sells hot dogs in a perfectly competitive hot dog market. Her output per day and costs are outlined in the following table.a If the current equilibrium price in the hot dog market is $1.80, how many hot dogs will Frances produce, what price will
Draw a graph showing a firm in a perfectly competitive market that is making a loss. Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve and average variable cost curve, and make sure that you show the area representing the
Draw a graph showing a firm in a perfectly competitive market that is making a profit. Make sure your graph includes the firm’s demand curve, marginal revenue curve, marginal cost curve, average total cost curve and average variable cost curve, and make sure that you show the area representing
In Table 7.3, what are Farmer Jones’ fixed costs? Suppose that his fixed costs increase by $1. Will this increase in fixed costs change the profit-maximising level of production for Farmer Jones? Briefly explain. How much profit will Farmer Jones make now?
Refer again to Table 7.2 and Table 7.3. Suppose that the marginal cost of oats is $0.50 higher for every bushel of oats produced. For example, the marginal cost of producing the eighth bushel of oats is now $6.50.Assume that the price of oats remains at $4 per bushel.Will this increase in marginal
Refer to Table 7.2 and Table 7.3 on page 188. Suppose the price of oats rises to $7.00 per bushel. How many bushels of oats will Farmer Jones produce, and how much profit will he make? Briefly explain.
Why don’t firms maximise revenue rather than profit? If a firm decided to maximise revenue, would it be likely to produce a smaller or larger quantity than if it were maximising profit? Briefly explain.
A student argues: ‘To maximise profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be falling.’ Briefly explain whether you agree
Explain why it is true that for a firm in a perfectly competitive market, the profit-maximising condition MR = MC is equivalent to the condition P = MC.
When the difference between TR and TC is at its maximum positive value, explain why MR must equal MC at this point.
Explain why it is true that for a firm in a perfectly competitive market, P = MR = AR.
The financial writer Andrew Tobias has described an incident that occurred when he was a student at the Harvard Business School. Each student in the class was given large amounts of information about a particular firm and asked to determine a pricing strategy for the firm.Most of the students spent
[Related to Don’t let this happen to you on page 187] Explain whether you agree or disagree with the following remark:According to the model of perfectly competitive markets, the demand for wheat should be a horizontal line. But this can’t be true: when the price of wheat rises, the quantity of
Explain whether each of the following is a perfectly competitive market. For each market that is not perfectly competitive, explain why it is not.a Beef farming b Retail bookselling c Car manufacturing d New home construction
Draw a graph showing the market demand and supply for beef and the demand for the beef produced by one beef farmer. Make sure that you indicate the market price and the price received by the beef farmer. Assume that the beef market is perfectly competitive.
What is a price taker? When are firms likely to be price takers?
What are the three conditions for a market to be perfectly competitive?
In recent decades, agricultural production in many countries has shifted to much larger enterprises.What would economies of scale have to do with agricultural production shifting to much larger operations?
[Related to Don’t let this happen to you] Explain whether you agree with the following statement: ‘Henry Ford expected to be able to produce cars at a lower average cost at his River Rouge plant. Unfortunately, because of diminishing returns, his costs were actually higher.’
Online booksellers have captured a very large portion of the retail book market over the past several years.Companies that have a large online presence, such as Amazon (which also owns the popular The Book Depository) and Barnes & Noble, now dominate this market. Over the past 15 years, the number
[Related to Solved problem 6.2 and Making the connection 6.4] Suppose that Henry Ford had continued to experience economies of scale no matter how large a car factory he built. Discuss what the implications of this would have been for the motor vehicle industry.
[Related to Solved problem 6.2] An account of the difficulties of Japanese mobile phone manufacturers argues that these firms made a mistake by concentrating on selling in high-income countries, while making little effort to sell in low-income countries. Much growth in the demand for mobile phones,
An article in The Wall Street Journal described the Chinese car industry as ‘a hodgepodge of companies’, most of which produce fewer than 100 000 cars per year. Ford Chief Executive Alan Mulally commented on the situation by saying, ‘If you don’t have scale, you just won’t be able to be
Why can short-run average total cost never be less than long-run average cost for a given level of output?
What are diseconomies of scale? What is the main reason that firms may eventually encounter diseconomies of scale as they keep increasing the size of their store or factory?
What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?
What is the difference between total cost and variable costs in the long run?
Explain how the listed events (a–d) would affect the following at Qantas Airways:i Marginal cost ii Average variable cost iii Average fixed cost iv Average total cost a Qantas signs a new contract with the unions that requires the company to pay higher wages.b The federal government starts to
List the errors in the following graph. Carefully explain why the curves drawn this way are wrong. In other words, why can’t these curves be as they are shown in the graph? Cost (per unit) AFC AVC 0 ATC Quantity of output
Use the information in the following graph to find the values for the following at an output level of 1000:a Marginal cost b Total cost c Variable cost d Fixed cost Cost (per unit) $30 20 20 15 MC ATC AVC 0 1000 Quantity of output
Suppose the total cost of producing 10 000 tennis balls is$30 000 and the fixed cost is $10 000.a What is the variable cost?b When output is 10 000, what are the average variable cost and the average fixed cost?c Assuming that the cost curves have the usual shape, is the dollar difference between
As the level of output increases, what happens to the difference between the value of average total cost and average variable cost?
As the level of output increases, what happens to the value of average fixed cost?
(The following problem is somewhat more advanced.) Using symbols, we can write that the marginal product of labour is equal to Δ Q/Δ L, and marginal cost is equal to Δ TC/Δ Q.Because fixed costs by definition don’t change, marginal cost is also equal to Δ VC/Δ Q. If Julie Johnson’s only
[Related to Solved problem 6.1] Is Julie Johnson correct when she says the following? ‘Currently, I am producing 20 000 copies per day at a total cost of $750.00. If I produce 20 001 copies my total cost will rise to $750.02;therefore, my average cost of producing copies must be increasing.’
Suppose a firm has no fixed costs, so all its costs are variable, even in the short run.a If the firm’s marginal costs are continually increasing(that is, marginal cost is increasing from the first unit of output produced), will the firm’s average total cost curve have a U shape?b If the
Is it possible for average total cost to be decreasing over a range of output where marginal cost is increasing?Briefly explain.
Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum.
If the marginal product of labour is rising, is the marginal cost of production rising or falling? Briefly explain.
What is the difference between the average cost of production and marginal cost of production?
Is it possible for a firm to experience a technological change that would increase the marginal product of labour while leaving the average product of labour unchanged? Explain.
[Related to Making the connection 6.3] Briefly explain whether you agree with the following argument.Adam Smith’s idea of the gains to firms from the division of labour makes a lot of sense when the good being manufactured is something complex like cars or computers. However, it doesn’t apply
A student looks at the data in Table 6.3 and draws this conclusion: ‘The marginal product of labour is increasing for the first three workers hired, then it declines for the next three workers. I guess each of the first three workers must have been a hard worker. Then the owner, Julie, must have
Use the numbers from the table in problem 3.4 to draw one graph showing how total output increases with the quantity of workers hired and a second graph showing the marginal product of labour and the average product of labour.
What is the law of diminishing returns? Does it apply in the long run?
How do specialisation and division of labour typically affect the marginal product of labour?
Draw a graph showing the usual relationship between the marginal product of labour and the average product of labour. Why do the marginal product of labour and the average product of labour have the shapes you drew?
Suppose that Bill owns a vehicle smash repair shop. The table below shows how the quantity of cars Bill can repair per month depends on the number of workers that he hires. Assume that he pays each worker $4000 per month and his fixed costs are $6000 per month. Using the information provided,
For Simon O’Brien’s pizza restaurant, explain whether each of the following is a fixed cost or a variable cost.a The payment he makes on his building insurance policy.b The payment he makes to buy pizza dough.c The wages he pays his workers.d The lease payment he makes to the landlord who owns
Many firms consider their wage costs to be variable costs. Why do publishers usually consider their wage and salary costs to be fixed costs? Are the costs of utilities always fixed, are they always variable, or can they be both? Briefly explain.
According to an article in Forbes magazine, the cost of materials in Apple’s iPhone 6 with 16 gigabytes of memory was estimated to be US$227. Apple was selling the iPhone 6 for US$650 in the United States. Most phone carriers in the United States made payments to Apple that reduced the price to
What is the difference between the short run and the long run? Is the amount of time that separates the short run from the long run the same for every firm?
[Related to Making the connection 6.1] The 7-Eleven chain of convenience stores in Japan reorganised its system for supplying its stores with food. This led to a sharp reduction in the number of trucks the company had to use, while increasing the amount of fresh food on stores’ shelves. Someone
Which of the following are examples of a firm experiencing technological change?a The firm is able to reduce each worker’s wage rate by 10 per cent and still produce the same level of output.b A training program makes the firm’s workers more productive.c An exercise program makes the firm’s
Briefly explain whether you agree with the following observation: ‘Technological change refers only to the invention of new products, so it is not relevant to the operations of most firms.’
What is the difference between technology and technological change?
If the price consumers pay and the price sellers receive are not affected by whether consumers or sellers collect a tax on a good or service, why does the government usually require sellers and not consumers to collect a tax?
Suppose that the federal government decides to put an excise tax (sales tax) on pizza of $1 per pizza. Briefly explain whether you agree with the following statement made by a representative of the pizza industry:The pizza industry is very competitive. As a result, pizza sellers will have to pay
Consider the graph of the market for cigarettes in problem 4.4, where it is assumed that the government collects the tax from the producers.a How would the graph be different if the tax was collected from the buyers of cigarettes?b What would be the new equilibrium price that buyers pay producers
[Related to Solved problem 5.2] Use the following diagram of the market for cigarettes to answer the following questions.a According to the diagram, how much is the government tax on cigarettes?b What price do producers receive after paying the tax?c How much tax revenue does the government
Does who is legally responsible for paying a tax—buyers or sellers—make a difference in the amount of tax each pays? Briefly explain.
[Related to Solved problem 5.1] Suppose that initially the petrol market is in equilibrium at a price of $2.00 per litre and a quantity of 45 million litres per month. Then a war in the Middle East disrupts production of oil, shifting the supply curve for petrol from S1 to S2. The price of petrol
Suppose the competitive equilibrium rent for a standard two-bedroom apartment in Adelaide is $2000 per month.Now suppose the state government passes a rent control law imposing a price ceiling of $1600 per month. Use a demand and supply graph to illustrate the impact of the rent control law.
The cities of Albury and Wodonga are less than 15 minutes’drive apart, although Albury is in the state of New South Wales and Wodonga is in the state of Victoria. Suppose Wodonga enacts a rent control law on apartments that puts a ceiling on rents that is well below their competitive market
A student makes the following argument:A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of a product that consumers buy because it keeps the price below the
According to an article in The Economist magazine, because of rent controls in the Indian city of Mumbai,‘landlords have left an estimated 40 000 properties vacant’. (The Economist, 2008)2 Briefly explain why rent controls might result in landlords leaving properties vacant.
[Related to Don’t let this happen to you] Briefly explain whether you agree or disagree with the following statement: ‘If there is a shortage of a good it must be scarce, but there is not a shortage of every scarce good.’
[Related to Solved problem 5.1] Use the information in the following table on the market for apartments in Bay City to answer the following questions.a In the absence of rent control, what is the equilibrium rent and what is the equilibrium quantity of apartments rented? Draw a demand and supply

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

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