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Introduction To Information Systems 5th Edition R. Kelly Rainer, Brad Prince, Casey G. Cegielski - Solutions
Because the future is inherently uncertain, firms often follow“rules of thumb” to make decisions such as how much capital (factories and machinery for production) to buy and how to price their products. Examples are financial ratios and markup pricing.a. Does this behavior make sense?b. How
While some assets, such as forests, can provide benefits to society in perpetuity, some firms see forests as consumable assets. One example occurred when corporate raider James Goldsmith forcibly acquired Crown Zellerbach in Washington State. After doing so, he cut all of Crown Zellerbach’s
How many of the 10 highest paid CEOs are women?(To find out, you can go to the paywatch source, www.paywatch.org, on the web.) What is the likely reason for your finding? (Feminist)
Think of the pay of various groups in society.a. How does the compensation awarded to heads of religious organizations compare to the salary of CEOs in profit-making organizations?b. What is the explanation for this difference?c. Should there be a difference? (Religious)
Some economists have compared managers to politicians.a. How do the incentives facing managers resemble those of politicians?b. How do they differ?c. What does your answer say about the relative value of each to society? (Austrian)
What did Adam Smith mean when he wrote, “Seldom do businessmen of the same trade get together but that it results in some detriment to the general public”?
You’re working at the Department of Justice. Ms. Ecofame has just developed a new index, the Ecofame index, which she argues is preferable to the Herfindahl index. The Ecofame index is calculated by cubing the market share of the top 10 firms in the industry.a. Calculate an Ecofame guideline that
In 1992 American Airlines offered a 50-percent-off sale and cut fares. In 1993 Continental Airlines and Northwest Airlines sued American Airlines over this action.a. What was the likely basis of the suit?b. How does the knowledge that Continental and Northwest were in serious financial trouble play
How would the U.S. economy likely differ today if Standard Oil had not been broken up?
In the 1990s, the infant/preschool toy market four-firm concentration ratio was 72 percent. With 8 percent of the market, Mattel was the fourth-largest firm in that market.Mattel proposed to buy Fisher-Price, the market leader with 27 percent.a. Why would Mattel want to buy Fisher-Price?b. What
Private colleges of the same caliber generally charge roughly the same tuition. Would you characterize these colleges as a cartel type of oligopoly?
A firm is convinced that if it lowers its price, no other firm in the industry will change price; however, it believes that if it raises its price, some other firms will match its increase, making its demand curve more inelastic. The current price is$8 and its marginal cost is constant at $4.a.
A Businessweek magazine study of mergers and acquisitions between 1990 and 1995 found that 83 percent of these deals achieved, at best, marginal returns, and 50 percent recorded a loss.a. If such mergers are not especially profitable, why do they occur?b. U.S. antitrust policy has changed
Does market structure determine firm behavior or does firm behavior determine market structure? (Post-Keynesian)
In which market structure would women likely be most successful? Why? (Feminist)
Alexis de Tocqueville once stated, “The Americans have applied to the sexes the great principle of political economy which governs the manufacturers of our age, by carefully dividing the duties of men from those of women, in order that the great work of society may be the better carried on.”a.
In the past two chapters you have learned much about market power: how it is used, the efficiency implications, and how society has responded. Yet this power remains, albeit minimally checked from time to time. The economist Thorstein Veblen would not be surprised by this. He would argue that firms
What technological advances threatened Microsoft’s monopoly?(LO15-4)
In what market did Microsoft have a monopoly in the late 1990s and early 2000s? (LO15-4)
Discuss the effect of antitrust policy in the: (LO15-4)a. Monopolistic competition model.b. Cartel model of oligopoly.c. Contestable market model of oligopoly.
Demonstrate graphically how regulating the price of a monopolist can both increase quantity and decrease price.(Difficult) (LO15-4)a. Why did the regulation have the effect it did?b. How relevant to the real world do you believe this result is in the contestable markets view of the competitive
Distinguish the basis of judgment for the Standard Oil and the ALCOA cases. (LO15-4)
Is a contestable model or cartel model more likely to judge an industry by performance? Explain your answer. (LO15-4)
What is the difference between judgment by performance and judgment by structure? (LO15-4)
Suppose you are an economist for Mattel, manufacturer of the doll Barbie, which was making an unsolicited bid to take over Hasbro, manufacturer of the doll G.I. Joe. (LO15-4)a. Would you argue that the relevant market is dolls, preschool toys, or all toys including video games? Why?b. Would your
If you were an economist for a firm that wanted to merge, would you argue that the three-digit or five-digit NAICS industry is the relevant market? Why? (LO15-3)
The pizza market is divided as follows: (LO15-3)a. How would you describe its market structure?b. What is the approximate Herfindahl index?c. What is the four-firm concentration ratio? Pizza Hut 20.7% Domino's 17.0 Little Caesars 6.7 Pizza Inn/Pantera's 2.2 Round Table 2.0 All others 51.4
Which industry is more highly concentrated: one with a Herfindahl index of 1,200 or one with a four-firm concentration ratio of 55 percent? (LO15-3)
In the 1990s Mattel proposed acquiring Fisher-Price for$1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two large firms were Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the
Kellogg’s, which controls 32 percent of the breakfast cereal market, cut the prices of some of its best-selling brands of cereal to regain market share lost to Post, which controls 20 percent of the market. General Mills has 24 percent of the market. The price cuts were expected to trigger a
Robert Crandell, former CEO of American Airlines, phoned the Braniff Airways CEO and said, “Raise your fares 20 percent and I’ll raise mine the next morning.” (LO15-2)a. Why would he do this?b. If you were the Braniff Airways CEO, would you have gone along?c. Why should Crandell not have done
How are the contestable market model and the cartel model of oligopoly related? (LO15-2)
What is the difference between the contestable market model and the cartel model of oligopoly? (LO15-2)
Is an oligopolist more or less likely to engage in strategic decision making compared to a monopolistic competitor? (LO15-1)
What distinguishes oligopoly from monopolistic competition?(LO15-1)
Does the product differentiation in monopolistic competition make us better or worse off? Why?
A best-selling horror book, Duma Key by Stephen King, was sold in hardback for $28 when it was first released. One year later, the publisher issued a soft-cover edition for $9.99.What accounts for the difference in price? (Note: The marginal cost of printing a book with a soft cover is not much
Colleges give financial aid to certain students. Is this price discrimination? If so, should it be against the law?
Copyrights provide authors with a monopoly.a. What effect would eliminating copyrights have on the price and output of textbooks?b. Should copyrights be eliminated?
Most magazines offer enormous subscription deals for college students. For example, Time magazine offers a one-year subscription for $29.95, when the cover price is$3.95 per issue. This is an 85 percent discount.a. Why do magazines offer special deals to students?b. How would your answer change if
Oftentimes, gas stations a couple of miles apart will differ in price by as much as 5 to 10 cents per gallon because oil companies use a pricing system called zone pricing.For example, gas is sold wholesale to stations in Pleasanton, California, at about a 13 percent discount from the wholesale
When you buy a cheap computer printer or home fax, you can sometimes get it for free after the rebate. Why would a firm sell you something for a zero price? (The answer isn’t that it wants to be nice.)
Assume your city government has been contracting with a single garbage collection firm that has been granted an exclusive franchise, the sole right, to pick up trash within the entire city limits. However, it has been proposed that companies be allowed to compete for business with residents on an
Explain the effects on college education of the development of a teaching machine that you plug into a student’s brain and that makes the student understand everything.How would your answer differ if a college could monopolize production of this machine?
Any large grocery store carries at least seven different kinds of corn chips—baked, fried, salsa-flavored, white, yellow, blue, and lime-flavored.a. When is product differentiation real and when is it an illusion?b. Is there an objective universal answer to a?c. Are there any individually
Firms in a monopolistically competitive market depend on differentiating their products.a. How do firms differentiate their products?b. Aside from commodities such as gold and grain, how many homogeneous products can you name?c. What does your answer to b suggest about market structure in the real
The original language for patent law comes from Thomas Jefferson. He wrote that patents can be obtained for “any new and useful art, machine, manufacture, or composition of matter, or any new or useful improvement thereof.”These words remain at the core of U.S. patent law.a. Do they allow life
Large pharmaceutical firms use monopoly power granted by patents to sell drugs at prices that far exceed marginal costs. Evidence from countries without effective patent protections suggests that these drugs could sell for as little as 25 percent of their patent-protected prices. That difference
When analyzing the conduct of “modern” industry, Thorstein Veblen argued that captains of industry succeeded by eliminating their rivals through predatory exploitation and thus sabotaging production efficiency for personal fortune.a. How does John D. Rockefeller’s late-19th-century view that
Do men have a monopoly over the best jobs in the United States? If so, how is that monopoly protected? (Feminist)
Austrian economists observe that most lasting monopolies are the result of government and that any attempt to make government strong enough to control monopolies may result in an abuse of government power to protect and create more monopolies. What cautionary advice could we draw from this
Both a perfect competitor and a monopolistic competitor choose output where MC = MR, and neither makes a profit in the long run. How is it, then, that the monopolistic competitor produces less than a perfect competitor? (LO14-5)
Manufacturers often pay “slotting fees,” payments to retailers to provide their product prime shelf space. These fees range from $25,000 for one item in one store to$3 million for a chain of stores. An example is placing Doritos within a football display before Super Bowl Sunday.(LO14-5)a. In
You’re the manager of a firm that has constant marginal cost of $6. Fixed cost is zero. The market structure is monopolistically competitive. You’re faced with the following demand curve: (LO14-5)a. Determine graphically the profit-maximizing price and output for your firm in the short run.
If a monopolistic competitor is able to restrict output, why doesn’t it earn economic profits? (LO14-5)
Suppose a monopolistic competitor in long-run equilibrium has a constant marginal cost of $6 and faces the demand curve given in the following table: (LO14-5)a. What output will the firm choose?b. What will be the monopolistic competitor’s average fixed cost at the output it chooses? Q 20 18 P $
What are the “monopolistic” and the “competitive”elements of monopolistic competition? (LO14-5)
What are the ways in which a firm can differentiate its product from that of its competitors? What is the overriding objective of product differentiation? (LO14-5)
Econocompany is under investigation by the U.S. Department of Justice for violating antitrust laws. The government decides that Econocompany has a natural monopoly and that, if it is to keep the government’s business, it must sell at a price equal to marginal cost. Econocompany says that it
During the 2001 anthrax scare, the U.S. government threatened to disregard Bayer’s patent of ciprofloxacin, the most effective drug to fight anthrax, and license the production of the drug to American drug companies to stockpile the drug in case of an anthrax epidemic. While the policy would
How is efficiency related to the number of firms in an industry characterized by strong economies of scale? (LO14-4)
In the late 1990s, the Government Accounting Office reported that airlines block new carriers at major airports.(LO14-4)a. What effect does this have on fares and the number of flights at those airports?b. How much are airlines willing to spend to control the use of gates to block new carriers?
What three things must a firm be able to do to pricediscriminate?(LO14-3)
Will the welfare loss from a monopolist with a perfectly elastic marginal cost curve be greater or less than the welfare loss from a monopolist with an upward-sloping marginal cost curve? (LO14-3)
Demonstrate the welfare loss created by a monopoly.(LO14-3)
A monopolist with a straight-line demand curve finds that it can sell 2 units at $12 each or 12 units at $2 each. Its fixed cost is $20 and its marginal cost is constant at$3 per unit. (LO14-2)a. Draw the MC, ATC, MR, and demand curves for this monopolist.b. At what output level would the
True or false? Monopolists differ from perfect competitors because monopolists make a profit. Why? (LO14-2)
Demonstrate graphically the profit-maximizing positions for a perfect competitor and a monopolist. How do they differ? (LO14-2)
A monopolist is selling fish. But if the fish don’t sell, they rot. What will be the likely elasticity at the point on the demand curve at which the monopolist sets the price?(Difficult) (LO14-2)
Say you place a lump-sum tax (a tax that is treated as a fixed cost) on a monopolist. How will that affect its output and pricing decisions? (LO14-2)
State what’s wrong with the following graphs: (LO14-2) (c) Price Price (a) P MR Profit P Q What's wrong? MC Price What's wrong? D MR D Q Quantity (b) Quantity What's wrong? MC ATC Price What's wrong? MC ATC MR D Quantity (d) Quantity ATC
Why is marginal revenue below average revenue for a monopolist?(LO14-2)
Does a monopolist take market price as given? Why or why not? (LO14-1)
What is the key difference between a monopolist and a perfect competitor? (LO14-1)
In 2004 FAO Schwartz closed its 89 Zany Brainy stores.a. Demonstrate graphically the relationship between ATC, AVC, and price faced by Zany Brainy stores when they decided to close.b. Assuming the market is perfectly competitive and is a constant-cost industry, what will happen in this market in
Hundreds of music stores have been closing in the face of stagnant demand for CDs and new competitors—online music vendors and discount retailers.a. How would price competition from these new sources cause a retail store to close?b. In the long run, what effect will new entrants have on the price
A California biotechnology firm submitted a tomato that will not rot for weeks to the U.S. Food and Drug Administration.It designed such a fruit by changing the genetic structure of the tomato. What effect will this technological change have on:a. The price of tomatoes?b. Farmers who grow
The milk industry has a number of interesting aspects.Provide economic explanations for the following:a. Fluid milk is 87 percent water. It can be dried and reconstituted so that it is almost indistinguishable from fresh milk. What is a likely reason that such reconstituted milk is not produced?b.
If a firm is owned by its workers but otherwise meets all the qualifications for a perfectly competitive firm, will its price and output decisions differ from the price and output decisions of a perfectly competitive firm? Why?
As the chapter points out, the Internet has made the U.S.economy more competitive by lowering barriers to entry and exit from industries.a. To what extent is the Internet itself competitive?b. Can competitive conditions develop from information technology, a technology that was created initially by
The perfectly competitive model assumes that firms know when marginal revenue equals marginal costs.a. If a firm doesn’t have this information, can it produce at the profit-maximizing level of output?b. If firms don’t have such knowledge, how might the theory of perfect competition be changed
Perfect competition is analytically elegant.a. What percentage of an economy’s total production do you think is provided by perfectly competitive firms?b. Based on your answer toa, why does the text spend so much time on perfect competition? (Institutionalist)
This chapter discusses perfect competition as a benchmark to think about the economy.a. Can labor market discrimination—hiring someone on the basis of race or gender rather than capability— exist in a perfectly competitive industry?b. Can the elimination of discrimination increase
The book presents the perfectly competitive model as the foundation for economic analysis.a. How well does the theory of perfect competition reflect the real world?b. What role, if any, does the government have in promoting perfectly competitive markets?c. What is the danger in the government’s
A Wall Street Journal headline states: “A Nation of Snackers Snubs Old Favorite: The Beloved Cookie.” As U.S. consumers adopted more carbohydrate-conscious diets, the number of cookie boxes sold declined 5.4 percent that year, the third consecutive year of decline. (LO13-4)a. Assuming the
Use the accompanying graph, which shows the marginal cost and average total cost curves for the shoe store Zapateria, a perfectly competitive firm. (LO13-4)a. How many pairs of shoes will Zapateria produce if the market price of shoes is $70 a pair?b. What is the total profit Zapateria will earn if
Why is the long-run market supply curve horizontal in a constant-cost industry? (LO13-4)
Based on the following table: (LO13-4)a. What is the profit-maximizing output?b. What will happen to the market price in the long run? Output Price 0 $10 Total Costs $ 31 10 1234567 7880 10 40 2 10 45 10 48 10 55 10 65 10 80 10 100 10 140 10 220 10 340
A farmer is producing where MC = MR. Say that half of the cost of producing wheat is the rental cost of land(a fixed cost) and half is the cost of labor and machines(a variable cost). If the average total cost of producing wheat is $8 and the price of wheat is $6, what would you advise the farmer
A profit-maximizing firm is producing where MR = MC and has an average total cost of $4, but it gets a price of$3 for each good it sells. (LO13-3)a. What would you advise the firm to do?b. What would you advise the firm to do if you knew average variable costs were $3.50?
Under what cost condition is the shutdown point the same as the point at which a firm exits the market? (LO13-3)
Draw the ATC, AVC, and MC curves for a typical firm.Label the price at which the firm would shut down temporarily and the price at which the firm would exit the market in the long run. (LO13-3)
How is a firm’s marginal cost curve related to the market supply curve? (LO13-3)
Graphically demonstrate the quantity and price of a perfectly competitive firm. (LO13-3)a. Why is a slightly larger quantity not preferred?b. Why is a slightly lower quantity not preferred?c. Label the shutdown point in your diagram.d. You have just discovered that shutting down means that you
Each of 10 firms in a given industry has the costs given in the left-hand table. The market demand schedule is given in the right-hand table. (LO13-3)a. What is the market equilibrium price and the price each firm gets for its product?b. What is the equilibrium market quantity and the quantity each
Draw marginal cost, marginal revenue, and average total cost curves for a typical perfectly competitive firm in long-run equilibrium and indicate the profit-maximizing level of output and total profit for that firm. (LO13-3)
What will be the effect of a technological development that reduces marginal costs in a competitive market on short-run price, quantity, and profit? (LO13-3)
State what is wrong with each of the graphs. (LO13-3) (a) Price P Price What's wrong? MC AFC D= MR P Price What's wrong? MC Q Quantity (b) Q Quantity What's MC Price What's MC wrong? wrong? AVC ATC AVC ATC P D (c) Q Quantity (d) Q Quantity D= MR D
Draw marginal cost, marginal revenue, and average total cost curves for a typical perfectly competitive firm and indicate the profit-maximizing level of output and total profit for that firm. Is the firm in long-run equilibrium?Why or why not? (LO13-3)
A perfectly competitive firm sells its good for$20. If marginal cost is four times the quantity produced, how much does the firm produce? Why?(Difficult) (LO13-2)
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