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managerial economics
Managerial Economics Theory And Practice 1st Edition Thomas J Webster - Solutions
Bertrand criticized Cournot’s duopoly model for its assumption of constant prices. Do you agree with this statement? If not, then why not?
Explain why the Herfindahl–Hirschman Index is superior to the concentration ratio.
What is the concentration ratio? What are the weaknesses of concentration ratios as measures of oligopolistic market structures?
Product differentiation is an essential characteristic of oligopolistic market structures. Do you agree? Explain.
Oligopolies are characterized by “a few” firms in the industry.What is meant by “a few firms,” and when does “a few” become “too many”?
In contrast to perfect and monopolistic competition, oligopolistic market structures are characterized by interdependence in pricing and output decisions. Explain.
What are some of the criticisms of the model of monopolistic competition?
Compared with perfect competition, how is monopolistic competition similar to monopoly? How different?
If some firms exit a monopolistically competitive industry, what will happen to the demand curve for the typical firm remaining in the industry?
If a typical firm in a monopolistically competitive industry earns an economic loss, should the firm shut down? Would your answer be different if the firm were perfectly competitive?
In the long run, the selling price of a monopolistically competitive firm’s product is equal to the minimum per-unit cost of production. Do you agree with this statement? If not, then why not?
The demand for the product of a typical firm in a monopolistically competitive industry tends to be more price inelastic than the demand for the product of a monopolist. Do you agree? Explain.
In monopolistically competitive industries, what is the optimal level of advertising expenditure? Explain.
Explain the importance of advertising in monopolistically competitive industries. How does this compare with the importance of advertising in perfectly competitive industries?
In the long run, monopolistically competitive firms are inherently inefficient. Do you agree? Explain.
Monopolistically competitive firms are similar to monopolies in that they tend to charge a higher price and supply less product than firms in perfectly competitive industries. Do you agree? Explain.
Monopolistically competitive firms are similar to monopolies in that they are able to earn economic profits in the long run. Do you agree with this statement? If not, then why not?
In monopolistically competitive industries it is not important for each firm to supply products that are, in fact, different from those of competitors.It is important only that the public think that the products are different.Do you agree? Explain.
Describe the similarities and differences between perfectly competitive and monopolistically competitive market structures.
Why do governments grant patents and copyrights?
Compared with perfect competition, for consumers monopolies are always and inferior market structure. Do you agree? If not, then why not?
Describe the social welfare effects of monopolies versus those of perfect competition.
The Lerner index is a measure of a firm’s monopoly power. It is also a measure of the firm’s per-unit proportional markup over marginal cost. Explain.
Indicate whether the following statements are true, false, or uncertain.Explain.a. A profit-maximizing monopoly charges the highest price possible for its product.b. Profit-maximizing monopolies are similar to profit-maximizing perfectly competitive firms in that P0 = MR.c. It is possible to
Under what circumstances will maximizing the firm’s total revenues result in maximum total profits.
For a profit-maximizing firm subject to the law of diminishing marginal product, maximizing total revenue is equivalent to maximizing total profit. Do you agree? Explain.
A monopolist does not have a supply curve. Explain.
Suppose that an unregulated electric utility is a governmentfranchised, profit-maximizing monopoly. At the prevailing price of electricity, an empirical study indicates that the price elasticity of demand for electricity is -0.8. Something is wrong.What? Explain.
To maximize total revenue, the monopolist must charge the highest price possible. Do you agree? Explain.
A profit-maximizing monopolist will never produce along the inelastic portion of the market demand curve. Do you agree? Explain.
When price is greater than average variable cost for a typical firm in a perfectly competitive industry, we can be quite certain that the price will fall. Explain.
In a perfectly competitive industry, the market supply curve is the summation of the individual firm’s marginal cost curves. Do you agree?Explain.
The marginal cost curve is a perfectly competitive firm’s supply curve. Do you agree with this statement? If not, then why not?
A perfectly competitive firm will continue to operate in the short run as long as total revenues cover all the firm’s total variable costs and some the firm’s total fixed costs. Explain.
A perfectly competitive firm maximizes profits by producing at an output level at which marginal revenue equals declining marginal cost. Do you agree? If not, then why not?
A perfectly competitive firm in long-run competitive equilibrium produces at minimum per-unit cost. Do you agree? Explain.
No competitive industry would ever operate at a point on the industry demand curve at which the price elasticity of demand is equal to or less than one in absolute value. Comment.
No firm in a perfectly competitive industry would ever operate at a point on the demand curve at which the price elasticity of demand is equal to or less than one in absolute value. Comment.
A perfectly competitive firm in long-run competitive equilibrium earns a zero rate of return on investment. Do you agree? If not, then why not?
A perfectly competitive firm in long-run competitive equilibrium must also be in short-run competitive equilibrium. Do you agree? Explain.
A perfectly competitive firm in short-run competitive equilibrium must also be in long-run competitive equilibrium. Do you agree? Explain.
A profit-maximizing firm is producing at an output level at which the price of its product is less than the average total cost of producing that product. Under what conditions will this firm shut down? Explain.
A profit-maximizing firm is producing at an output level at which the price of its product is less than the average total cost of producing that product. Under what conditions will this firm continue to operate? Explain.
A perfectly competitive firm earning an economic loss at the profitmaximizing level of output should shut down. Do you agree with this statement?Explain.
For industries characterized as perfectly competitive, equilibrium price and quantity can never be determined along the inelastic portion of the market demand curve. Do you agree? Explain.
Firms in perfectly competitive industries may be described as price takers. What are the implications of this observation for the price and output decisions of profit-maximizing firms?
Price competition is characteristic of firms in perfectly competitive industries. Do you agree with this statement? If not, then why not?
A smart manager will always employ a more productive worker over a less productive worker. Do you agree? If not, then why not?
The nominal purpose of minimum wage legislation is to increase the earnings of relatively unskilled workers. Explain how an increase in the minimum wage affects the employment of unskilled labor.
Suppose that a firm’s production function exhibits increasing returns to scale. It must also be true that the firm’s expansion path increases at an increasing rate. Do you agree with this statement? Explain.
What is a firm’s expansion path?
Suppose that a unit of labor is more productive than a unit of capital.It must be true that a profit-maximizing firm will produce as long as MPL/PL> MPK/PK. Do you agree? If not, then why not?
Provide examples of economies of scope and cost complementarities other than those given in the text.
Explain the difference between economies of scope and cost complementarities.
Economies of scope imply that cost complementarities exist, but cost complementarities do not imply the existence of economies of scope.Do you agree with this statement? If not, then why not?
Economies of scale and economies of scope are the same thing. Do you agree with this statement? If not, then why not?
Explain some of the reasons a firm might experience economies of scale. What is the relation between economies of scale and increasing returns to scale? Be specific.
Large companies are more likely to experience diseconomies of scale than small companies. Do you agree? If not, then why not?
Large firms tend to be more management “top heavy.” That is, a larger proportion of their personnel are management than is true of small firms. Do you agree with this statement? Why?
Suppose that learning factor is zero. What does this imply about the amount of labor that should be used in the production process?
The learning curve effect is summarized by the equation G = jQb, where j is the cost of producing the first unit of output,b = (log m)/(log l), m is the learning factor, and l is a scalar increase in production. How would you go about estimating the values of j and b?
Explain the difference between the learning curve effect and the experience curve effect.
For the total cost function TC = b0+ b1Q + b2Q2+ b3Q3, demonstrate that (3b3b1 - b2 2) > 0 is required for minimum marginal cost to be positive.
For the production function Q = f(K, L), demonstrate that in the short run marginal cost is equal to the wage rate divided by the marginal product of labor.
Explain the difference between total fixed cost and sunk cost. Give examples of each.
Demonstrate that MC = AVC when AVC is minimized.
Demonstrate that MC = ATC when ATC is minimized.
Since the prices of productive inputs must always be positive, and since the cost of hiring another unit of, say labor, is the wage rate, it must also be true that marginal cost of producing one more unit of output must also be positive. Do you agree? Explain.
Only implicit costs are opportunity costs. Do you agree with this statement? If not, then why not?
All costs are opportunity costs. Do you agree? Explain.
Consider the production function Q = f(K, L), where Q represent units of output, and K and L represent units of capital and labor inputs, respectively. In the short run, demonstrate that for fixed input prices, the shape of the total variable cost curve is identical to the shape of the total
Marginal cost is the cost of producing the “last” unit of output. Do you agree? If not, then why not.
Explain the difference between marginal cost and incremental cost.
Suppose that output is a function of labor and capital input and exhibits constant returns to scale. If a firm doubles its use of both labor and capital, the total product of labor curve will become steeper. Do you agree?Explain.
An increase in the size of a company’s labor force will result in a shift of the average product of labor curve up and to the right. This indicates that the company is experiencing increasing returns to scale. Do you agree? Explain.
An increase in the size of a company’s labor force resulted in an increase in the average product of labor. For this to happen, the firm’s total output must have increased. Do you agree? Explain.
Suppose that output is a function of labor and capital input.Suppose further that capital and labor must be combined in fixed proportions. These conditions indicate that returns to scale are constant. Do you agree? Explain.
Suppose that output is a function of labor and capital input.Suppose further that the corresponding isoquant is linear.These conditions indicate that labor and capital are not substitutable for each other. Do you agree? Explain.
What is the coefficient of output elasticity?
What is the relationship between the average product of labor and the marginal product of labor?
Describe at least three desirable properties of Cobb–Douglas production functions.
Firms operate in the short run and plan in the long run. Do you agree? Explain.
Isoquants may be concave with respect to the origin. Do you agree?Explain.
What is the ratio of the marginal product of labor to the average product of labor?
Suppose that output is a function of labor and capital input. If a firm decides to reduce the amount of capital employed, how much labor should be hired to maintain a given level of output?
Suppose that output is a function of labor and capital input. The slope of an isoquant is equal to the ratio of the marginal products of capital and labor. Do you agree? Explain.
When the average product of labor is equal to the marginal product of labor, the marginal product of labor is maximized. Do you agree?Explain.
Define each of the following:a. Stage I of productionb. Stage II of productionc. Stage III of production
Suppose that a firm’s production function is Q = KL-1. Does this production function exhibit increasing, decreasing, or constant returns to scale? Explain.
Suppose that output is a function of capital and labor input.Assume that the production function exhibits imperfect substitutability between the factors of production.What, if anything, can you say about the values of the first and second derivatives of the isoquant?
The degree of convexity of an isoquant determines the degree of substitutability of factors of production. Do you agree? Explain.
Isoquants cannot intersect. Do you agree? Explain.
What does a linear isoquant illustrate?
What does an “L-shaped” isoquant illustrate? Can you give an example of a production process that would exhibit an “L-shaped” isoquant?
Explain the difference between perfect and imperfect substitutability of factors of production.
Suppose that output is a function of labor and capital. Diagrammatically, what is the marginal rate of technical substitution?
Define “marginal rate of technical substitution.”
Suppose that a firm’s production function is Q = 75K0.4L0.7.What is the value of the output elasticity of labor? What is the value of the output elasticity of capital? Does this firm’s production function exhibit constant, increasing, or decreasing returns to scale?
Suppose that output is a function of labor and capital. Define the output elasticity of variable labor input. Define the output elasticity of variable capital input.What is the sum of the output elasticity of variable labor and variable capital input?
Explain the difference between the law of diminishing marginal product and decreasing returns to scale.
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