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Microeconomics 5th Global Edition R. Glenn Hubbard; Anthony Patrick O'Brien - Solutions

[elated to Solved Problem 16.2 on page 560] In addition to discounting the price of computers purchased by students and faculty, Apple sells certain computer models only to schools and universities. According to a discussion on the MacRumors blog:Apple has quietly launched a lower cost $999 iMac
[elated to Solved Problem 16.2 on page 560] Most shops and cafes in Oxford offer substantial discounts to students from the university. However, the same does not hold true in small villages such as Aylesbury or Abingdon, both having a university with the same name as the village. Why is the
[elated to Solved Problem 16.2 on page 560] Use the graphs on the next page to answer the questions.a. If this firm wants to maximize profits, what price will it charge in Market 1, and what quantity will it sell?b. If this firm wants to maximize profits, what price will it charge in Market 2, and
[elated to the Don’t Let his Happen to You on page 558] A state law in California makes it illegal for businesses to charge men and women different prices for dry cleaning, laundry, tailoring, or hair grooming. The state legislator who introduced the law did so after a dry cleaner charged her
South Africa has about five major telecommunication companies offering mobile services. When unsatisfied customers call their provider to announce that they want to switch to a different provider, it is not uncommon for the provider to offer some discounts and benefits in order to convince the
It is not uncommon for clubs to follow price discrimination strategies based on gender. For example, a club may decide to offer free entry to all ladies, who do not have a male companion, on a certain day of the week (or all of them); the same club can charge a substantial entry fee for men
The West End of London attracts a considerable number of tourists from all over the world with its huge offer of theatre shows and musicals. Customers are ready to pay high prices for the tickets of musicals such as The Lion King, Phantom of the Opera, or The Book of Mormon.In some cases morning
Some years ago Valve Corporation developed Steam, a digital distribution platform used to sell and distribute games and related media online. Steam distributes in almost all countries of the world and only sells electronic copies of the software it deals with, therefore it does not send physical
What is perfect price discrimination? Is it likely to ever occur? Explain. Is perfect price discrimination economically efficient? Explain.
In 2013, the Rock and Roll Hall of Fame and Museum charged adults $22 for admission. Seniors (65 years and older) and military personnel were charged $17, and children between 9 and 12 years old were charged $13. Use the admission fees to rank these groups based on their elasticities of demand from
[elated to Solved Problem 16.1 on page 557] Suspicions about arbitrage have a long history. For example, Valerian of Cimiez, a Catholic bishop who lived during the fifth century, wrote: “When something is bought cheaply only so it can be retailed dearly, doing business always means cheating.”
[elated to Solved Problem 16.1 on page 557] Suppose California has many apple trees, and the price of apples there is low. Nevada has few apple trees, and the price of apples there is high. Abner buys low-priced California apples and ships them to Nevada, where he resells them at a high price. Is
The following table contains the actual prices four Web sites charged for a Blu-ray disc of the movie X-Men: First Class:Amazon $24.99 Wal-Mart 24.96 OrlandsBricks 21.58 ranch_records 17.75 On Google’s price comparison Web site, which allows customers to rate the seller, Amazon had been rated by
A newspaper article contains the following description of New York consumers avoiding the state’s 8.375 percent sales tax by shopping in New Jersey:For years, shoppers from New York City have played a game of retail arbitrage, traveling to the many malls in northern New Jersey, a state where
Illustrate the links between arbitrage and transaction costs.How are these two concepts related?roblems and pplications
[elated to the Making the onnection on page 542]After a federal court judge had found Apple guilty of conspiring with book publishers to raise e-book prices, the Department of Justice recommended that the judge order Apple not to sign agency pricing model contracts with publishers for five years.
The following table shows the market shares during the first three months of 2013 for companies in the U.S. personal computer (PC) market, which includes desk-based PCs and mobile PCs, such as mini-notebooks, but not tablet computers, such as the iPad:Company Market Share Hewlett-Packard 25%Dell 22
In October 2008, Delta Air Lines completed its acquisition of Northwest Airlines. The newly merged company is the largest airline in the world. The following statement regarding the merger is from a Justice Department press release:After a thorough, six-month investigation, during which the
Look again at the section “The Department of Justice and FTC Merger Guidelines,” which begins on page 544. Evaluate the following situations.a. A market initially has 20 firms, each with a 5 percent market share. Of the firms, 4 propose to merge, leaving a total of 17 firms in the industry. Are
The European Union regulates whether firms can merge with one another through the European Union merger law. Why do governments and institutions feel there is a need to regulate mergers?
Consider the natural monopoly shown in Figure 15.7 on page 546. Assume that the government regulatory agency sets the regulated price, PR, at the level of average total cost at which the demand curve intersects the ATC curve. If the firm knows that it will always be able to charge a price equal to
The Thailand Tobacco Monopoly, also known as TTM, was a state enterprise that had a monopoly in Thailand, and was operated by the Ministry of Finance. TTM would look into tobacco acquisitions and its import. However, due to the Free Trade Area agreement under ASEAN, 1992, other tobacco companies
Use the following graph of a monopoly to answer the questions:a. What quantity will the monopoly produce, and what price will the monopoly charge?b. Suppose the government decides to regulate this monopoly and imposes a price ceiling of $18 (in other words, the monopoly can charge less than $18 but
Use the following graph for a monopoly to answer the questions: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 price should it require the monopoly to charge?
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 a newly merged firm?
Suppose that the city has given Jorge a monopoly selling baseball caps at the local minor league stadium. Use the following graph to answer the questions:a. What quantity will Jorge produce, and what price will he charge?b. How much profit will he earn?c. Review the definition of allocatively
[elated to the hapter Opener on page 525] Suppose a second seafood restaurant opens in Stonington, Maine.Will consumer surplus and economic efficiency necessarily increase? Briefly explain.
Review the concept of externalities from Chapter 5, page 186. If a market is a monopoly, will a negative externality in production always lead to production beyond the level of economic efficiency? Use a graph to illustrate your answer.
Most cities own the water system that provides water to homes and businesses. Some cities charge a flat monthly fee, while other cities charge by the gallon. Which method of pricing is more likely to result in economic efficiency in the water market? Be sure to refer to the definition of economic
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
Look at Figure 15.5 on page 539. Does the deadweight loss due to monopoly depend on the type of product?Compare, for example, electricity and elaborate cakes in a small town.
Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power for the economy large or small?roblems and pplications
Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing production? Briefly explain.
When homebuilders construct a new housing development, they usually sell to a single cable television company the rights to lay cable. As a result, anyone buying a home in that development is not able to choose between competing cable companies. Some cities have begun to ban such exclusive
[elated to the Don’t Let his Happen to You on page 537] A student argues: “A monopolist has no competitors.When a tax like that in Solved Proble 15.3 is imposed, the monopolist can simply redirect the cost of the tax to the consumers by raising the price of the product.” Do you agree?
Does a monopolist have a supply curve? Briefly explain.(Hint: Look again at the definition of a supply curve in Chapter 3 on page 126 and consider whether this definition applies to a monopolist.)
Before inexpensive pocket calculators were developed, many science and engineering students used slide rules to make numerical calculations. Slide rules are no longer produced, which means nothing prevents you from establishing a monopoly in the slide rule market. Draw a graph showing the situation
[elated to Solved Problem 15.3 on page 536] Use the information in Solved Problem 15.3 to answer the following questions.a. What will Comcast do if the tax is $36.00 per month instead of $25.00? (Hint: Will its decision be different in the long run than in the short run?)b. Suppose that the flat
[elated to Solved Problem 15.3 on page 536] Ed Scahill has acquired a monopoly on the production of baseballs(don’t ask how) and faces the demand and cost situation shown in the following table:Price Quantity(per week)Total Revenue Marginal Revenue Total Cost Marginal Cost$20 15,000 $330,000 19
Draw a graph that shows a monopolist earning a profit. Be sure your graph includes the monopolist’s demand, marginal revenue, average total cost, and marginal cost curves. Be sure to indicate the profit-maximizing level of output and price.
As noted in this chapter, many generic versions of the diabetes drug Glucophage were introduced within the first year of Glucophage’s patent expiration. Recently, the U.S. Supreme Court ruled that patients who become ill taking generic drugs cannot sue the manufacturer of those drugs, even
[elated to Solved Problem 15.2 on page 532] 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:Quantity (per day) Total Cost 30 $1,200 40 1,400 50 2,250 60 3,000 Briefly explain whether this
In China, the government owns many more firms than in the United States. A former Chinese government official argued that a number of government-run industries such as oil refining were natural monopolies. Is it likely that oil refining is a natural monopoly? How would you be able to tell?Source:
[elated to the Making the onnection on page 530]Why was De Beers worried that people might resell their old diamonds? How did De Beers attempt to convince consumers that previously owned diamonds were not good substitutes for new diamonds? How did De Beers’s strategy affect the demand curve for
[elated to the Making the onnection on page 528]Why should it matter legally whether Professor Anspach is correct that Hasbro’s Monopoly game closely resembles a game that had been played for decades before Charles Darrow claimed to have invented it? Does it matter economically? Briefly explain.
Project Gutenberg is a volunteer effort to encourage the creation and distribution of electronic books, i.e. eBooks.It distributes electronic books freely, and it deals with public domain items in order to not infringe copyrights. The founder of Project Gutenberg, Michael Hart, stated that the
In European Union countries, patents can be obtained via either national patent offices or a centralized process at the European Patent Office (EPO). The EPO was created in the seventies, and patents granted by it lead to the creation of independent national patents enforceable in each country. Did
According to the Organization for Economic Cooperation and Development (OECD), until a few years ago postal services in most OECD countries were monopolistic, some still organized as government departments or ministries. Explain how policy makers favor increasing competition in such markets.
What is “natural” about a natural monopoly?roblems and pplications
[elated to the Making the onnection on page 526]Why is access to YouTube by other search engines such as Yahoo and Bing relevant to the question of whether Google has a monopoly in the Internet search engine market?
[elated to the Making the onnection on page 526] 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 percent share of
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.
Some observers say that changes in the past few years have eroded the monopoly power of local cable television companies, even if no other cable firms have entered their markets. What are these changes? Do these “monopoly”firms still have monopoly power?
Some claim that Microsoft is a monopolist thanks to the Windows operating system: there are no close substitutes for this product, and therefore, Microsoft enjoys positive profits despite making mistakes at times (for example, Windows Vista has been negatively assessed by most users). Do you agree?
Why are there two definitions of a monopoly, a narrow and a broader one?roblems and pplications
The market for electronic readers consists of relatively few firms, including Amazon, Sony, and Plastic Logic. In an interview, Walter Mossberg of the Wall Street Journal asked Rich Archuleta, CEO of Plastic Logic, what price the company would be charging for a new electronic reader that it was
In August 2013, the U.S. Department of Justice blocked a proposed merger between American Airlines and U.S.Airways. If the merger were allowed, American, Delta, United Continental, and Southwest would account for 85 percent of seats on domestic flights. An article discussing the merger observed
In a forum posting on the Web site www.startupnation.com, a contributor made the following comment regarding the advice in the business strategy book Blue Ocean Strategy: “The key message for me was don’t try to look like, taste like, act like the competition.” Briefly explain what this
[elated to the Making the Connection on page 516]In the preface to the 2004 reprint of In Search of Excellence, Thomas Peters and Robert Waterman wrote: “Our main detractors point to the decline of some of the companies we featured. They miss the point. . . . We weren’t writing Forever
In 2013, Google was developing a video game console. In designing the console, Google considered what types of microchips to use. The company was choosing between chips made by AMD that Microsoft and Sony were using in their game consoles and chips made by ARM that Google was using in its
Michael Porter argued that in many industries, “strategies converge and competition becomes a series of races down identical paths that no one can win.” Briefly explain whether firms in these industries will likely earn economic profits.Source: Michael E. Porter, “What Is Strategy?” Harvard
Does the strength of each of the five competitive forces remain constant over time? Briefly explain.roblems and pplications
Refer to Figure 14.5 on page 511. Consider the entries in the row of the payoff matrix that correspond to Saudi Arabia choosing “low output.” Suppose the numbers change so that Nigeria’s profit is $15 million when Nigeria chooses “Low Output” and $10 million when it chooses “High
Suppose that in the situation shown in Figure 14.7 on page 514, TruImage’s profit is $1.5 million if the firm accepts Dell’s contract offer of $20 per copy. Now will Dell offer TruImage a contract for $20 per copy or a contract for$30 per copy? Briefly explain.
[elated to the Chapter Opener on page 499] In June 2013, Microsoft announced that its new Xbox One video game console would have a price of $499. Sony then announced that its new PlayStation 4 video game console would have a price of $399. An article on the event where Microsoft introduced the new
[elated to Solved Proble 14.3 on page 512] Consider the government is deciding whether or not to make a cut in its education expenditures, and in particular to cut down teachers’ salaries. The government knows that the teachers’ union will oppose this move and be willing to fight by calling for
Could a decision tree be used to illustrate the prisoner’s dilemma?Problems and Applications
In the United Kingdom there are a few dominant supermarket chains, such as Asda, Marks & Spencer’s, Sainsbury’s, and Tesco. The BBC recently mentioned the expression “supermarket price war” when writing about this particular market.a. Briefly explain what is meant by a price war.b. Why do
There are two bus companies with express OxfordLondon routes. The coaches of both companies usually run on time, and there are frequent routes all day. In early 2014, one of the two companies announced price increases for both single and season tickets. The other company announced similar measures
A newspaper article referred to problems OPEC was having in affecting the world price of oil. The article noted that a key problem was OPEC’s “inability to enforce internal production targets.” An executive at an oil company was quoted as saying: “Those [OPEC countries] crying about too
DemandTec is a firm that provides software to retailers, such as department stores, that allow the firms to make better decisions about when to increase or cut prices, based on changes in demand, changes in costs, and other factors.DemandTec and firms selling similar software have allowed smaller
Finding dominant strategies is often a very effective way of analyzing 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.Microsoft earns$1 billion High Microsoft
[elated to the Making the Connection on page 508]Until the late 1990s, airlines would post proposed changes in ticket prices on computer reservation systems several days before the new ticket prices went into effect. Then the federal government took action to end this practice. Now airlines can
[elated to the Making the Connection on page 508]Airlines often find themselves in price wars. Consider the following game: Delta and United are the only two airlines flying the route from Houston to Omaha. Each firm has two strategies: charge a high price or charge a low price.Delta earns$20,000
[elated to the Making the Connection on page 508]The following appeared in an article in the Wall Street Journal: “Last week, true to discount roots dating to 1971, Southwest [Airlines] launched a summer fare sale on domestic flights, with one-way prices as low as $49. As in the past, major
[elated to the Making the Connection on page 506]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 paya. Is it possible that a bidder might receive useful information during the auction,
[elated to Solved Problem 14.2 on page 505] Radio frequency identification (RFID) tracking tags may ultimately replace bar codes. With this system, a radio signal automatically records the arrival of a product in a warehouse, its shipment to a store, and its purchase by the consumer.Suppose that
[elated to Solved Problem 14.2 on page 505] CocaCola and Pepsi both advertise aggressively, but would they be better off if they didn’t? Their commercials are usually not designed to convey new information about their products. Instead, they are designed to capture each other’s customers.
[elated to the Don’t Let his Happen to You on page 505]A student argues: “The prisoner’s 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, the
For several years, a professor at Johns Hopkins University had been using the following grading scheme for his final exam: He would give an A to the student with the highest score. The grades of the remaining students were then based on what percentage their scores were of the top student’s
According to a number of relevant scientific studies, the world is facing unprecedented problems related to global warming and climate changes. These are mostly caused by the human activities in the recent decades. Live Aid founder and activist, Bob Geldof, went so far as to claim that the human
Under “early decision” college admission plans, students apply to a college in the fall and, if they are accepted, they must enroll in that college. Some critics of early decision plans, including some college presidents, argue that the plans put too much pressure on students to decide early in
Given that collusion improves firms, is it reasonable to assume that oligopolistic firms always collude in order to increase their profits?
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 also is told that he will serve a 15-year sentence if he remains silent while Tom confesses. If
What is a prisoner’s dilemma game? Is the outcome of the game likely to be different in a repeated game? Briefly explain.roblems and pplications
What is the difference between explicit collusion and implicit collusion? Give an example of each.
A historical account of the development of the cotton textile industry in England argued: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 to form an
Alfred Chandler, who was a professor at the Harvard Business School, once observed: “Imagine the diseconomies of scale—the great increase in unit costs—that would result from placing close to one-fourth of the world’s production of shoes, or textiles, or lumber into three factories or
The following graph illustrates the average total cost curves for two automobile manufacturing firms: Little Auto and Big Auto. Under which of the following conditions would you expect to see the market composed of firms like Little Auto, and under which conditions would you expect to see the
Thomas McCraw, at the time a professor at the Harvard Business School, wrote: “Throughout American history, entrepreneurs have tried, sometimes desperately, to create big businesses out of naturally small-scale operations.It has not worked.” What advantage would entrepreneurs expect to gain
Is it reasonable to assume that the barriers to entry in a market will remain in place despite technological change and competition? Consider newspapers. In most countries there are a few widely-read newspapers, making this particular section an oligopoly. Nowadays, though, newspapers face
According to an article in The Economist, in 2013, regulators in Britain thought that the TSB bank would be successful in shaking up the oligopolistic British banking market—dominated by Barclays, HSBC, Llyods Banking Group, and The Royal Bank of Scotland Group—by providing competition to the
What is a patent? If a patent serves as a barrier to entry, why do governments issue patents?
What do barriers to entry have to do with the extent of competition in an industry? What are the most important barriers to entry?
Wealthy investors often invest in hedge funds. Hedge fund managers use investors’ money to buy stocks, bonds, and other investments with the intention of earning high returns. But an article in the New York Times notes that: “Even professionals have a problem in evaluating hedge fund
[elated to the Making the Connection on page 488]A firm that is first to market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. For example, the ballpoint pens made by the Reynolds International Pen Company often leaked.
7-Eleven, Inc., operates more than 20,000 convenience stores worldwide. Edward Moneypenny, 7-Eleven’s chief financial officer, was asked to name the biggest risk the company faced. He replied, “I would say that the biggest risk that 7-Eleven faces, like all retailers, is competition … because
Ferrari is an Italian sports car manufacturer, which decided to produce street-legal vehicles. This decision was made after having spent the initial twenty years of its existence in the race cars business. At the moment Ferrari produces and sells no more than 8,000 cars per year, which means that
How is research and development related to a firm’s long run profit in a monopolistically competitive market?roblems and pplications
In the United Kingdom there is a fierce competition among a number of different coffeehouse chains. Pret A Manger, a fast-food chain based in the United Kingdom, is a relatively small competitor in the market, facing competition from the two largest coffeehouse chains in the world, i.e. Starbucks

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