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microeconomics

Questions and Answers of Microeconomics

In April 2011, the European Commission found Procter \& Gamble, Unilever, and Henkel, the leading producers of washing powder in Europe, guilty of operating a cartel from 2002 to 2005 in eight
A 2016 study on 14 Dutch cartels that had an average duration of about five years and were fined by the Netherlands Authority for Consumers and Markets between 2007 and 2012 found that these cartels
On March 29, 2017, the European Commission blocked a \(£ 21\) billion merger between the London Stock Exchange and the Deutsche Börse on the grounds that the deal would create a de facto monopoly
A hub-and-spoke cartel is a collusive relationship between a group of competitors (the spokes) and one (or more) of their common suppliers or customers (the hub). In August 2011, the former Office of
In May 2017, The Weekend Australian reported that New Zealand's two largest newspaper networks would appeal a decision by the country's Commerce Commission to block them from merging. The newspaper
Suppose there are \(n\) firms selling a homogeneous product at a constant marginal cost in a Cournot market. The market demand curve is \(Q=100 / p\), where \(Q=n q\). What is the market elasticity
How would the Intel-AMD equilibrium in Solved Problem 13.2 change if AMD faced the same demand function as Intel, Equation 13.10?Equation 13.10:-Data From Solved Problem 13.2:-Intel and Advanced
Draw a figure to illustrate the Intel-AMD NashCournot equilibrium in Solved Problem 13.2. At what quantities do the best-response functions hit the axes?Data From Solved Problem 13.2:-Intel and
Suppose you live on the second floor of a twostory building that you own. You have managed to get the ground floor zoned for commercial use and are presently advertising the space to prospective
A country's competition regulator decides to allow the merger of the only two firms in a market reasoning that, while there would be a lessening of competition, the potential efficiency gains would
Suppose there are initially two identical firms that serve a market with constant marginal and average costs, \(M C=A C=6\), per unit of output. Firm 1 gains a first-mover advantage from an
Suppose that a market for toothpaste has two sellers, each of which says its product has the best combination of ingredients to protect against tooth decay and to control plaque, tartar, and gum
Consider the two toothpaste producers in Question 5.4. If instead of undertaking an advertising campaign, Firm 1 convinced Firm 2 to form a cartel, would it have been better off? Assume that both
Intel and AMD are the dominant central processing unit manufacturers. Assume they play the following game once and act simultaneously. Their profits are symmetric (which is consistent with the
Mimi wants to support her son Jeff if he looks for work but not otherwise. Jeff (unlike most young people) wants to look for a job only if his mother will not support his life of indolence. Their
Show that if American and United Airlines know that they will play the game just described repeatedly for exactly \(T\) periods that the firms are unlikely to cooperate.
Use the following game tree to demonstrate that an incumbent faced with potential entry may invest in new equipment even when the investment does not lower its cost. In the first stage of the game,
In the first stage of a game between an incumbent and a potential rival, the incumbent builds its plant using either an inflexible technology that allows it to produce only a (large) fixed quantity,
Derive and plot Olivia's Engel curve for pie if she eats pie only à la mode and does not eat either pie or ice cream alone (pie and ice cream are perfect complements).
Change the answer given in the Challenge Solution for the short run rather than for the long run.
Use the numbers for the alcohol and tobacco category from the table in the Application "Goods with a Large Consumer Surplus Loss from Price Increases" to draw a figure that illustrates the roles that
Because many consumers choose between coffee and tea, the coffee and tea demand functions depend on both prices. Suppose the demand curves for coffee and tea arewhere \(Q_{c}\) is the quantity of
Are allocations \(a\) and \(g\) in Figure 10.4 part of the contract curve?Data From Figure 10.4:- 60 80 50 160 30 12. 20 20 Jane's wood 40 40 Denise's candy Od 20 Contract curve Denise's wood 20 218
People who qualify for affordable housing in Sydney, Australia, have their rent capped at \(30 \%\) of their gross annual income. People who live in private rental properties in the city are not
Governments use wage subsidies to maintain employment in times of economic recession, to encourage firms to hire and train specific groups of workers such as low-income workers, women, and students
Municipalities in Belgium levy surtaxes on the personal income tax payable by their residents. Rates vary from \(0 \%\) to \(9 \%\), with the average rate being about \(7 \%\). Suppose the rate of
Suppose that a given quantity of milk is used to produce both cheese and protein powder. Cheese is made using curd from the milk, while the leftover whey is used to make protein powder, used by many
In a pure exchange economy with two goods, \(G\) and \(H\), the two traders have Cobb-Douglas utility functions. Amos' utility is
Adrienne and Sarah consume pizza, \(Z\), and cola, \(C\). Adrienne's utility function is \(U_{A}=Z_{A} C_{A}\), and Sarah's is \(Z_{D}^{0.5} C_{D}^{0.5}\). Adrienne's marginal utility of pizza is \(M
Modify Solved Problem 10.4 to show that the PPF more closely approximates a quarter of a circle if there are five people rather than three. One of the two new people, Bill, can produce five piles of
Several countries produce many of the same goods. Suppose that there are two countries, each of which produces the same two goods. Country 1 has 300 workers and Country 2 has 900 workers. The
Six people are getting together for dinner but are having trouble deciding where to go. Three of them prefer French to Indian to Thai food, two favor Thai to Indian to French food, and one prefers
Initially, a good sells in a competitive market at a single price, but a local government then restricts the quantity of the good that its citizens can buy. What happens to the equilibrium price of
Derive the marginal revenue curve when the monopoly faces the linear inverse demand function,in Figure 11.2. How does the slope of the marginal revenue curve compare to the slope of the inverse
When the iPad was introduced, Apple's constant marginal cost of producing its top-of-the-line iPad was about \(\$ 220\), its fixed cost was \(\$ 2,000\) million ( \(\$ 2\) billion), and we estimate
In the linear example in panel a of Figure 11.3, how does charging the monopoly a specific tax of \(t=\$ 8\) per unit affect the monopoly optimum and the welfare of consumers, the monopoly, and
According to a January 5, 2017, article in The Guardian, consumer spending in Britain on subscription streaming services for movies and TV shows grew by \(23 \%\) between 2015 and 2016 to \(£ 1.3\)
With a seating capacity of 99,354 at present, Camp Nou is the largest association football stadium in Europe and the second largest in the world. It is the home stadium for, and owned by, Futbol Club
If a monopolist faces the linear demand curve \(p=12-Q\), what is its level of output, revenue, and the elasticity of demand when \(M R=0\) ? If a monopolist were to decrease its output from 4 to 2
Regardless of the sport, the owners of professional sports teams are local monopolists. Many people argue that increasing attendance (and revenue) at sporting events should be a key objective of any
A 2011 report by the management consulting firm O'Rourke Group Partners indicated that a generic \$14 polo shirt sold in Canada and made in Bangladesh actually costs a retailer only \(\$ 5.67\)
Introduced in the nineteenth century, bicycles are the principal means of transportation in many parts of the world. Suppose there is a \(60 \%\) markup on the marginal cost of a bicycle tire that
Suppose that a monopoly faces the short-run cost function \(C=1,000+2 Q^{2}\) and the inverse demand curve \(p=500-0.5 Q\). How does charging the monopoly a per-unit tax of \(t=100\) affect the
A monopoly with a constant marginal cost \(m\) has a profit-maximizing price of \(p_{1}\). It faces a constant elasticity demand curve with elasticity . After the government applies a specific tax of
Consider the inverse demand curve \(p=210-3 Q\) and the cost function \(C=100+2 Q^{2}\). If the market were competitive, calculate the incidence of a specific tax, \(t=7\), that would fall on
In the Application "Botox Patent Monopoly," consumer surplus, triangle \(A\), equals the deadweight loss, triangle \(C\). Show that this equality is a result of the linear demand and constant
Once the copyright runs out on a book or musical composition, the work can legally be posted on the Internet for anyone to download. U.S. copyright law protects the monopoly for 95 years after the
Electric utilities are often natural monopolies. Due to the extensive and costly infrastructure needed to generate, transmit, and deliver electricity, one firm can produce the total output of the
Based on the information in the Application "Botox Patent Monopoly," what would happen to the optimum price and quantity if the government had set a price ceiling of \(\$ 200\) per vial of Botox?
International trade benefits countries by increasing total production and the quantity of goods and services available to consumers. However, not everyone wins. While trade creates new jobs for firms
A firm is considering selling a new good at an introductory price that is less than the monopoly price. By doing so, it hopes to create a critical mass of users and benefit from an increased future
Does the Challenge Solution change if the entry of the generic causes a parallel shift to the left of the patent monopoly's linear demand curve?
A patent grants the holder the exclusive right to use or sell an invention for the duration of the term of the patent. The Agreement on Trade Related Aspects of Intellectual Property Rights was
How does welfare change if the movie theater described in Table 12.1 goes from charging a single price to perfectly price discriminating? Table 12.1 A Theater's Profit Based on the Pricing Method
I estimated that Warner faced inverse demand functions for its Harry Potter and the Deathly Hallows, Part 2 DVD of \(p_{A}=57-4.8 Q_{A}\) in the United States and \(p_{B}=77-19 Q_{B}\) in the United
What U.S. and U.K. elasticities did Warner Brothers believe it faced for its Harry Potter and the Deathly Hallows, Part 2 DVD? Check that these elasticities are consistent with the observed price
A monopoly book publisher with a constant marginal cost (and average cost) of \(M C=1\) sells a novel in only two countries and faces a linear inverse demand curve of \(p_{1}=6-\frac{1}{2} Q_{1}\) in
A firm that sells word processing and spreadsheet programs has four potential customers with the following reservation prices:The firm's cost of production is zero, so maximizing its profit is
Many governments provide social housing to families with low or modest incomes. The rent charged for an accommodation is set according to the renter's income and rent increases are limited to keep it
Australian citizens aged 60 or over who are not working more than 20 hours per week are eligible for a free Seniors Card. Issued by individual state governments, the card provides government
The European Youth Card offers discounts on culture, travel, accommodation, shopping, and services in most European countries. Anyone under the age of 30 or 26 , depending on the country, can
Goods often sell for different prices in different countries. Suppose the inverse demand curves in two countries are \(p_{1}=40-3 Q_{1}\) and \(p_{2}=90-2 Q_{2}\), and a monopoly produces at constant
Renting an economy car in Munich and Berlin costs about the same, €19 per day. However, the rental price for a full size car is \(€ 10\) euros per day more in Munich (€36) than in Berlin
Suppose that the cost function curve for a natural monopoly is \(C(Q)=48+6 Q\) and the inverse demand function it faces is \(p=38-2 Q\). What are the firm's maximum profits if it cannot price
Founded in 1998, eBid is one of the oldest and largest online auction websites. It operates in 23 countries, has over two million registered users, and offers a huge array of items for auction. Does
Group price discrimination (also called third-degree price discrimination) is the most common type of price discrimination. Under it, a firm charges each group of customers a different price, but it
There are two distinct groups of customers in the market for a firm's product. Their inverse demand curves are \(p_{1}=5-Q_{1}\) and \(p_{2}=10-Q_{2}\). The monopoly's constant marginal cost of
Does a monopoly's ability to price discriminate between two groups of consumers depend on its marginal cost curve? To answer this, compare the situation for the monopolist when it engages in group
Suppose a monopoly sells its product in two countries and resale is not possible. The inverse demand curves in the two countries are \(p_{1}=200-10 Q_{1}\) and \(p_{2}=122-5 Q_{2}\). The marginal
In Solved Problem 12.4, calculate the firm's profit with and without a ban against shipments between the two countries.Data From Solved Problem 12.4:-A monopoly book publisher with a constant
Limited-time offers are a powerful marketing tool. Good ones are billed as the "best ever," create a sense of urgency (for example, "while supplies last"), provide incentives (for example, free
The price of a cappuccino at any given coffee shop can be more than double the price of a regular coffee with milk that is in a container of the same size. The basic ingredients of both products are
Under a single-rate electricity tariff for households and small businesses in Australia, a flat usage rate is charged for "blocks" of electricity consumed. The rate for the first block is higher than
Access to certain golf courses such as Golf de Morfontaine, north of Paris, France, is restricted to members and their guests. In addition to the membership fee, there is a charge (greens fee) to
A tennis club with a good reputation for providing high-quality programs is considering changing the way it charges its customers for lessons. Elena, one of those customers, is keen on improving her
As described in the Application "iTunes for a Song," Shiller and Waldfogel (2011) estimated that if iTunes used two-part pricing, charging an annual access fee and a low price per song, it would
Some people purchase expensive water conditioners to reduce the mineral content in their water, enhance the effectiveness of soaps and detergents, and reduce deposits in plumbing systems. A
An Indian restaurant has four potential customers with the following reservation prices:a. Calculate the profit-maximizing prices and the revenue when the firm prices each course separately.b. Is the
Using a graph similar to Figure 12.7, explain why a firm might not want to spend \(A\) on advertising, even though it shifts the firm's demand curve to the right.Figure 12.7:- p. $ per unit P2 P B
Google AdWords is a way for businesses to promote their products online; for example, when people are searching for resort packages, tours, or flights for a trip or vacation. Displaying products to
How might a natural disaster, violence, rising crime rates, or health alerts affect the optimal amount of advertising a tourism business chooses to purchase for the region affected, and why? Use a
When it is first released, a novel by a best-selling author is typically published as a hardcover book with a paper dust jacket covering it, and the paper used to print it is of a relatively high
Derive United Airlines’ best-response function if its marginal cost falls to \(\$ 99\) per unit due to a government subsidy. Given that American's marginal cost does not change, what is the new
Intel and Advanced Micro Devices (AMD) are the only two firms that produce central processing units (CPUs)-the brains-for personal computers. Both because the products differ physically and because
Which market structure best describes (a) mobile network operators in a country, (b) plumbers in a small town, (c) farms that grow mangoes, and (d) city waste management? Why?
As the aggregate profit of a cartel can exceed the combined profits of the same firms acting independently, firms have an incentive to form cartels and behave like a monopoly. However, cartels often
Suppose there are \(n\) firms selling a homogeneous product at a constant marginal cost, \(m=5\), in a Cournot market. The inverse market demand curve is \(p=20-Q\), where \(Q=n q\). What is the
Duopoly quantity-setting firms face the inverse market demand curve, \(p=100-5 Q\), where \(Q=q_{1}+q_{2}\). Each firm has a constant marginal cost of 10 per unit.a. What is the Nash-Cournot
Instead of two firms, as in Question 4.1, three firms now face the inverse market demand curve, \(p=100-5 Q\), where \(Q=q_{1}+q_{2}+q_{3}\), and each of the firms has a constant marginal cost of 10
Solved Problem 13.4 shows that a monopolistically competitive firm maximizes its profit where it is operating at less than full capacity. Does this result depend upon whether firms produce identical
The national government and some state governments in India provide incentives to entice new business ventures for less developed areas of the country to increase employment. Subsidies may be offered
Many countries provide funding for small companies to start or expand their businesses. In the European Union, subsidies take the form of grants, loans, and guarantees. In Question 4.1, duopoly
Suppose there are two firms, each headquartered in a different country, that are competing in the world market for business aircraft. The inverse market demand curve is \(p=1-Q\), where
Maureen loves apple pie à la mode (a slice of pie with a scoop of vanilla ice cream on top) but she doesn't like apple pie by itself or vanilla ice cream by itself (panel b of Figure 4.4). That is,
Suppose that the job in Question 5.5 that pays \(w^{*}\) and has no restriction on hours is the higher-paying job. How do Jerome's budget constraint and behavior change?Data From Question 5.5:-Jerome
Does the marginal rate of technical substitution vary along the isoquant for the firm that produced potato salad using Idaho and Maine potatoes? What is the MRTS at each point along the isoquant?
China, Japan, and South Korea have the top three shipbuilding industries in the world. Each of these countries also has a vibrant tourism industry. Of the two, which industry has the longer short
If the marginal product of labor is 2 units of output per day per worker for the first five workers and 0 units of output for the sixth worker onward, draw the total product curve, the average
Suppose that the production function is \(q=L^{0.75} K^{0.25}\).a. What is the average product of labor, holding capital fixed at \(\bar{K}\) ?b. What is the marginal product of labor? Calculate how
What is the law of diminishing marginal returns? Will a firm experience diminishing marginal returns in the short run if its production function is:a. \(q=K+L\) ?b. \(q=K L\) ?c. \(q=K L^{0.5}\) ?

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