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microeconomics principles applications
Principles Of Microeconomics 12th Global Edition Karl E. Case, Sharon E. Oster, Ray C. Fair - Solutions
2.7 If one were to do a research on olive oil and its producers around the world, they would come up with many varieties and producers of olive oil. Carry out such a search for Greek olive oil from Greece, considered to be the third leading producer of olive oil in the world. Do you expect to find
2.6 The table shows the relationship for a hypothetical firm between its advertising expenditures and the quantity of its output that it expects it can sell at a fixed price of $12 per unit.Advertising Expenditures (Millions)Quantity Sold at P = $12 in Million units$2.5 20.0$3.5 24.0$4.5 26.0$5.5
2.5 [related to the Economics in Practice on p. 352] As cities go, Las Vegas is about as “over-the-top” as is imaginable. Where else in the world can you find a 350-foot tall glass pyramid, a half-scale replica of the Eiffel Tower, a fire-spewing volcano, and patrons being serenaded in Italian
2.4 [related to the Economics in Practice on p. 350] The Economics in Practice mentions that Erzulie products are modestly priced. Do you expect to necessarily find such competitively-priced products in similar niche brands?Can you identify a few examples of niche products in other markets?
2.3 In a market in which there is vertical differentiation, we always see price differences among the products.In markets with horizontal differentiation, sometimes the products differ but prices are much the same. Why does vertical differentiation naturally bring with it price differences?
2.2 Write a brief essay explaining the accuracy of this statement: The Beatles were once a monopolistically competitive firm that became a monopolist.
2.1 Consider the local music scene in your area. Name some of the local live bands that play in clubs and music halls, both on and off campus. Look in your local newspaper for advertisements of upcoming shows or performances.How would you characterize the market for local musicians? Is there
1.1 Plaza Mayor, one of Madrid’s central squares, attracts many young people who frequent its many stores for entertain and to meet new people. As friendships and partnerships are created, this can be seen as a “market”where young people meet each other, get to know each other, and spend time
5.1 The following table represents the market share percentage for each firm in the prepared baby food industry in the US:2000 2001 2002 2003 2004 2005 2006 2007 2008 Beech-Nut 13% 13% 12% 11% 12% 13% 12% 11% 12%Earth’s Best 2% 1% 1% 1% 1% 2% 3% 4% 6%Gerber 72% 73% 76% 78% 79% 78% 79% 81%
4.1 Explain whether you agree or disagree with the following statements:a. In all oligopoly models except the contestable-market model, market concentration leads to output below the efficient level, and increasing output would create value that exceeds the social cost of the good. Therefore,
3.4 Management and union representatives at a firm are bargaining over wages: each side can either concede to the other party’s demands/offers or hold out. If both concede they “split the difference” and the union gets wages of $100 for its members while the firm enjoys profits of$5,000. If
3.3 Suppose we have an industry with two firms producing the same product. Acme Corporation produces 19,000 units, while Zoltar Corporation produces 1,000 units.The price in the market is $20, and both firms have marginal costs of production of $5. What incentives do the two firms have to lower
3.2 The payoff matrixes in Figure 2 at page bottom show the payoffs for two games. The payoffs are given in parentheses. The values on the left refers to the payoff to A; the values on the right refers to the payoff to B. Hence, (2, 25)means a $2 payoff to A and a $25 payoff to B.a. Is there a
3.1 The matrix in Figure 1 at page bottom shows payoffs based on the strategies chosen by two firms. If they collude and hold prices at $10, each firm will earn profits of $5 million. If A cheats on the agreement, lowering its price, but B does not, A will get 75 percent of the business and earn
2.5 [related to the Economics in Practice on p. 330]T-Mobile is the fourth-largest wireless communication provider in the United States, behind Verizon, AT&T, and Sprint. In an effort to differentiate themselves from their three larger competitors, T-Mobile was the first major company in the
2.4 What is the Cournot model? How does the output decision in the Cournot model differ from the output decision in a monopoly?
2.3 Explain whether you agree or disagree with the following statement. If all firms in an industry successfully engage in collusion, the resulting profit-maximizing price and output would be the same as if the industry was a monopoly.
2.2 In 2007 Canadian authorities opened an investigation over allegations that major players in the Canadian chocolate market, including Nestle, Hershey, Mars and ITWAL conspired to fix prices and stifle competition by effecting coordinated price increases. Research the economic and legal details
2.1 Assume that you are in the business of providing medical insurance. You have analyzed the market carefully, and you know that at a price of $6,000 per year, you will sell 40,000 insurance policies per year. In addition, you know that at any price above $6,000, no one will buy your insurance
1.3 Which of the following markets are likely to be perfectly contestable? Explain your answers.a. Coal miningb. Insurancec. Wind Farmsd. Landscapinge. Advertising 14.2 OLIGOPOLy MODELS Learning Objective: Compare and contrast three oligopoly models.
1.2 In a significant decision regarding patent eligibility, Alice Corp. v. CLS Bank International, the U.S Supreme Court in June 2004 effectively raised the bar for software patents by declining a patent on the grounds that implementation of claims based on abstract ideas were not patentable.The
1.1 Which of the following industries would you classify as an oligopoly? Explain your answer. If you are not sure, what information do you need to know to decide?a. Motorcyclesb. Hotelsc. Cruise linesd. Firearmse. Furniture
5.1 [related to the Economics in Practice on p. 316] One of the big success stories of recent years has been Google.Research the firm and write a memorandum to the head of the Antitrust Division of the Justice Department presenting the case for and against antitrust action against Google. In what
4.2 [related to the Economics in Practice on p. 314] Many high street bookstores have adult and teen sections where the adult copies of the same books cost more than children’s copies, the only difference being the books’ cover. Prices between the two copies, for both paperback and hardcover,
4.1 The following diagram illustrates the demand and marginal revenue curves facing a monopoly in an industry with no economies or diseconomies of scale. In the short and long run, MC = ATC.a. Calculate the values of profit, consumer surplus, and deadweight loss, and illustrate these on the
3.1 The diagram below shows a firm (industry) that earns a normal return to capital if organized competitively. Price in the market place is Pc under competition. We assume at first that marginal cost is fixed at $250 per unit of output and that there are no economies or diseconomies of scale.[The
2.10 Taylor Swift is a singer-songwriter whose pop album 1989 was the top-selling album of 2014, with 3.66 million copies sold in just its first 9 weeks of release. The path to success for pop musicians involves reducing the elasticity of demand that they face and building barriers to entry. That
2.9 [related to the Economics in Practice on p. 300] When the 2001 Toyota Prius was introduced in the United States, it was the first mass-produced hybrid gas/electric car in the U.S. market. At the time of its introduction, almost 2,000 cars had been pre-sold at the manufacturer’s suggested
2.8 [related to the Economics in Practice on p. 307] What would have been the wider implications of a favourable Supreme Court NFL ruling in other industries like credit card networks and chain restaurants? Explain.
2.7 Prior to 1995, Taiwan had only one beer producer, a government-owned monopoly called Taiwan Beer.Suppose that while it was a monopoly, the company was run in a way to maximize profit for the government.That is, assume that it behaved like a private, profitmaximizing monopolist. Assuming demand
2.6 The following diagram shows the cost structure of a monopoly firm as well as market demand. Identify on the graph and calculate the following:a. Profit-maximizing output levelb. Profit-maximizing pricec. Total revenued. Total coste. Total profit or loss MC = ATC Output, Q$0 D$5 42 0 10,000 MR
2.5 The following diagram illustrates the demand curve facing a monopoly in an industry with no economies or diseconomies of scale and no fixed costs. In the short and long run, MC = ATC. Copy the diagram and indicate the following:a. Optimal outputb. Optimal pricec. Total revenued. Total coste.
2.4 Edible Entomology, a monopoly, faces the following demand schedule for its chocolate-covered grasshoppers(sales in pounds per week):
2.3 There are a large number of pharmaceutical stores in the city of Medicovia, and certain chemists are in the business of supplying illegal medical goods. Over the course of three years, one supplier, with sharp entrepreneurial skills, is able to establish herself as the sole supplier of illegal
2.2 Explain why the marginal revenue curve facing a competitive firm differs from the marginal revenue curve facing a monopolist.
2.1 Do you agree or disagree with each of the following statements? Explain your reasoning.a. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control price.b. Because a monopoly is the only firm in an industry, it can charge virtually any price for its
1.1 EasyJet is the only airliner serving the route Manchester, UK—Thessaloniki, Greece. Do you think that this airliner has a monopoly in serving this particular route? Explain.
18. A firm that charges the maximum amount that buyers are willing to pay for each unit is practicing perfect price discrimination.
17. Charging different prices to different buyers is called price discrimination. The motivation for price discrimination is fairly obvious: If a firm can identify those who are willing to pay a higher price for a good, it can earn more profit from them by charging a higher price.
16. Actions that firms take to preserve positive profits, such as lobbying for restrictions on competition, are called rent seeking. Rent-seeking behavior consumes resources and adds to social cost, thus reducing social welfare even further.
15. When firms price above marginal cost, the result is an inefficient mix of output. The decrease in consumer surplus is larger than the monopolist’s profit, thus causing a net loss in social welfare.
14. When a firm exhibits economies of scale so large that average costs continuously decline with output, it may be efficient to have only one firm in an industry. Such an industry is called a natural monopoly.
13. Forms of barriers to entry include economies of scale, patents, government rules, ownership of scarce factors, and network effects.
12. Barriers to entry prevent new entrants from competing away industry excess profits.
11. Compared with a competitively organized industry, a monopolist produces too little output, charges higher prices, and earns economic profits. Because MR always lies below the demand curve for a monopoly, monopolists always charge a price higher than MC (the price that would be set by perfect
10. In the short run, monopolists are limited by a fixed factor of production, just as competitive firms are. Monopolies that do not generate enough revenue to cover costs will go out of business in the long run.
9. Monopolies have no identifiable supply curves. They simply choose a point on the market demand curve. That is, they choose a price and quantity to produce, which depend on the shapes of both the marginal cost and demand curves.
8. A profit-maximizing monopolist will produce up to the point at which marginal revenue is equal to marginal cost (MR = MC).
7. For a monopolist, an increase in output involves not just producing more and selling it but also reducing the price of its output to sell it. Thus, marginal revenue, to a monopolist, is not equal to product price, as it is in competition. Instead, marginal revenue is lower than price because to
6. In perfect competition, many firms supply homogeneous products. With only one firm in a monopoly market, however, there is no distinction between the firm and the industry—the firm is the industry. The market demand curve is thus the firm’s demand curve, and the total quantity supplied in
5. Market power does not imply that a monopolist can charge any price it wants. Monopolies are constrained by market demand. They can sell only what people will buy and only at a price that people are willing to pay
4. Market power means that firms must make four decisions instead of three: (1) how much to produce, (2) how to produce it, (3) what quantity of each input to buy, and (4) what price to charge for their output.
3. A pure monopoly is an industry with a single firm that produces a product for which there are no close substitutes and in which there are significant barriers to entry.
2. A market in which individual firms have some control over price is imperfectly competitive. Such firms exercise market power. The three forms of imperfect competition are monopoly, oligopoly, and monopolistic competition.
1. A number of assumptions underlie the logic of perfect competition. Among them: (1) A large number of firms and households are interacting in each market; (2) firms in a given market produce undifferentiated, or homogeneous, products;and (3) new firms are free to enter industries and compete for
3.5 Explain the difference between a positive externality and a negative externality. Can both types of externalities result in market failure? Why or why not?
3.4 Briefly explain whether each of the following represents a public good.a. The samba street parade held during the Rio de Janiero Carnival.b. A high tea at the Mount Nelson Hotel in Cape Town South Africa.c. The world famous Eiffel Tower in Paris.d. The formula one motor race held each year on
3.3 After suffering from three floods in 5 years, Clarice decided to have a new drainage ditch installed at the front of her property. This new ditch not only keeps water from flooding her home, but also channels some of the water away from neighboring properties, where it flows directly into the
3.2 Each instance that follows is an example of one of the four types of market failure discussed in this chapter. In each case, identify the type of market failure and defend your choice briefly.a. Everyone in town would benefit from the acquisition of two new fire engines, but the town does not
3.1 Do you agree or disagree with each of the following statements? Explain your answer.a. Nutritional food is a public good and should be produced by the public sector because private markets will fail to produce it efficiently.b. Imperfect markets are inefficient because as price-makers, firms in
2.11 Under what condition would society benefit from more of a good being produced, and under what condition would society benefit from less of a good being produced?
2.10 Explain why resources are allocated efficiently among firms and why output is distributed efficiently among households in perfectly competitive markets.
2.9 Three golf courses in the same resort town hire groundskeepers with the same skills. Ocean Oaks pays its workers $12 per hour, Luxury Links pays $11 per hour, and Pacific Paradise pays $14 per hour. Each golf course hires the profit-maximizing number of workers. Is the allocation of labor
2.8 Which of the following are actual Pareto-efficient changes? Explain briefly.a. You blast your MP3 player at full volume through your car speakers while driving your convertible through Chicago.b. Your neighbor never returns the lawnmower he borrowed from you.c. You use a store coupon to save
2.7 Assume that there are two sectors in an economy: goods(G) and services (S). Both sectors are perfectly competitive, with large numbers of firms and constant returns to scale. As income rises, households spend a larger portion of their income on S and a smaller portion on G. Using supply and
2.6 Suppose a well known international airline carrier ends up double-booking its last remaining seat in its economy traveller section on its route from London to Mumbai.Two alternatives are proposed:a. Toss a coin.b. Sell the ticket to the highest bidder.Compare the two options from the standpoint
2.5 Which of the following are examples of Pareto-efficient changes? Explain your answers.a. The Hooterville Police Department implements costsaving programs without having to sacrifice the quality of their services.b. Competition is introduced into the satellite television industry, and monthly
2.4 Rugby World Cup organizers have opened up a new front in their battle to prevent tickets being resold for huge profits, targeting hundreds of individuals and dozens of websites. Organizers have revealed that they have issued more than 600 letters to people selling their tickets on secondary
2.3 Emerald Island has a climate that is suited to banana production and yields 840 pounds per acre. Tropical Springs has a climate that is not well-suited for bananas and yields only 250 pounds per acre. Emerald Island has a climate that is not well-suited for mango production and yields 325
2.2 The output of workers at a factory depends on the number of supervisors hired (see below). The factory sells its output for $0.50 each, it hires 50 production workers at a wage of$100 per day, and needs to decide how many supervisors to hire. The daily wage of supervisors is $500 but output
2.1 South African Airways (SAA) and Quantas Airlines hold a duopoly- a ‘code-share’ – on direct flights from Australia to South Africa. The International Air Services Commission has indicated to the airlines that the tie-up may be cancelled at the end of 2015. The Commission warned the
12.2 AlloCATIvE EFFICIEnCy AnD CoMPETITIvE EquIlIbRIuM Learning Objective: Explain the principles of economic efficiency.
1.3 Consider a simple Asian economy with only four markets (energy, food, labour, and capital) and two types of households (rich and poor). Explain why an excise tax on energy is likely to hurt white collar households more than the blue collar households, despite expectations that the opposite
1.2 For each sentence below describing changes in the tangerine market, note whether the statement is true, false, or uncertain, and explain your answer. You will find it helpful to draw a graph for each case.a. If consumer income increases and worker wages fall, quantity will rise and prices will
1.1 [related to the Economics in Practice on p. 286] The Economics in Practice in this chapter describes the adjustment of the corn market in the United States to the federal mandate requiring refiners to use corn-based ethanol in the production of fuel. Up until January 2012, refiners were given a
1. Use general equilibrium supply and demand analysis to show the impact of requiring more corn ethanol on the market for food. Treat corn as good X and all other foods as Y.
1A.11 You have just won a million-dollar lottery and will receive$50,000 a year for the next 20 years. How much is this worth to you today?1A.12 Explain what will happen to the present value of money 1 year from now if the market interest rate falls? What if the market interest rate rises?
1A.10 The market interest rate is 5 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Explain your choice in each of the following situations:a. Would you prefer a $500 gift today or a $540 gift next year?b. Would you prefer a $100 gift now or
1A.9 You are offered the choice of two payment streams:a. $150 paid one year from now and $150 paid two years from nowb. $130 paid one year from now and $160 paid two years from now. Which payment stream would you prefer if the interest rate is 5 percent? If it is 15 percent?
1A.8 Assume that the present discounted value of an investment project (commercial development) at a discount rate of 7 percent is $825,445,000. Assume that the building just sold for $850 million. Will the buyer earn a rate of return of more than 4 percent, exactly 4 percent, or less than 4
1A.7 Based on your answers to questions 1A.5 and 1A.6, state whether each of the following is true or false:a. Ceteris paribus, the price of a bond increases when the interest rate increases.b. Ceteris paribus, the price of a bond increases when any given amount of money is received sooner rather
1A.6 What should someone be willing to pay for each of the bonds in question 1A.5 if the interest rate doubled to 7 percent?
1A.5 Determine what someone should be willing to pay for each of the following bonds when the market interest rate for borrowing and lending is 3.5 percent.a. A bond that promises to pay $15,000 in a lump-sum payment after 1 yearb. A bond that promises to pay $15,000 in a lump-sum payment after 2
1A.4 Calculate the present value of the income streams A to E in Table 1 at an 8 percent interest rate and again at a 10 percent rate.Suppose the investment behind the flow of income in E is a machine that cost $1,235 at the beginning of year 1. Would you buy the machine if the interest rate were 8
1A.3 The town council’s finance committee has evaluated data and determined that the present discounted value of the benefits from a proposed dog park comes to $3,250,000.The total construction cost of the dog park is $3,500,000.This implies that the dog park should be built. Do you agree with
1A.2 You are retiring from your job and are given two options. You can accept a lump sum payment from the company, or you can accept a smaller annual payment that will continue for as long as you live. How would you decide which option is best?What information do you need?
1A.1 Suppose you were offered $5,000 to be delivered in 1 year.Further suppose you had the alternative of putting money into a safe certificate of deposit paying annual interest at 8 percent. Would you pay $4,800 in exchange for the $5,000 after 1 year? What is the maximum amount you would pay for
3.6 The Blume quintuplets, Aster, Dahlia, Iris, Jasmine, and Poppy, have an opportunity to purchase a wholesale florist company. Each of the women would have to put up$300,000 to make the purchase. The revenue from the business is expected to remain constant at $650,000 per year for the next
3.5 Draw a graph showing an investment demand curve and explain the slope of the curve.
3.4 Abigail, an analyst with a venture capital firm, is approached by Tomas about financing his new business venture, a company which will produce solar-powered hydroponic growing equipment for light industrial use.What information should Abigail have before making a decision about financing
3.3 You are operating a heavy equipment leasing and rental company. Your consultant tells you to focus you marketing strategy on new start-up companies rather than thriving companies that are remodeling and seeking new equipment. Why might this suggestion be a good one given the tax laws in effect
3.2 The board of directors of the Estelar Company in Brazil was presented with the following list of investment projects for implementation in 2016:Project Total Cost(Brazilian Reais Converted to U.S.Dollars)Estimated Rate of Return Factory in Buenos Aires, Argentina$ 22,480,000 17%Factory in
3.1 Why might a college athlete invest heavily in training to become a professional basketball player given that the chances of succeeding are less than 2 percent? Does this mean that investing in human capital in the form of practicing jump shots is necessarily a bad investment?
2.9 For each of the following, decide whether you agree or disagree and explain your answer:a. Savings and investment are just two words for the same thing.b. When I buy a share of Microsoft stock, I have invested;when I buy a government bond, I have not.c. Higher interest rates lead to more
2.8 [related to the Economics in Practice on p. 267] The text states that in terms of value, the majority of stock in the United States is held by households through institutions and the percentage of institutional holding of stock(as well as the percentage of insider holding) often varies based on
2.7 What important factors might cause the supply curve for loanable funds to increase (shift to the right)? Identify the effect that such a shift in the supply curve for loanable funds would have on the equilibrium level of the interest rate? Identify important factors that might cause the demand
2.6 For most of 2014 and the early part of 2015, the Wall Street Journal had suggested that the Chinese stock market was grossly overvalued even while it was breaking all time records monthly. Its argument was that the risk factor of stock was being increased dramatically due to decreased stability
2.5 [related to the Economics in Practice on p. 262]Netscape Communications Corporation was founded in April 1994, and was one of the pioneers in the era when Internet was evolving as a revolutionizing phenomenon.Netscape came up with a broad portfolio of digital products, which had great utility
2.4 Explain what we mean when we say that “households supply capital and firms demand capital.”
2.3 From an international newspaper such as the Herald Tribune or from the business section of your local daily business newspaper, or from the Internet, look up the prime interest rate, the corporate bond rate, and the interest rate on 10-year government bonds today. List some of the reasons these
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