Modern Industrial Organization 3rd Edition Dennis W. Carlton, Jeffrey M. Perloff - Solutions

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Have the articles of incorporation and the bylaws of your organization been reviewed by the board within the last five years? If changes are appropriate, has the board formally voted on amendments?
Has there ever been a formal test for organized abandonment?
What criteria have been developed to evaluate the continued relevance and appropriateness of your organization’s mission and activities?
Who are your organization’s constituents? Are they well represented in the organization? Are they well served by the organization’s activities?
Has a planning process been developed that balances the need for mission-related organizational and program development with long-term financial security?
Does the mission statement provide a broad statement of purpose with an ancillary statement providing a more detailed framework from which your organization can develop a coherent set of activities?
Has the mission statement of your organization been reviewed within the last five years?Does it still accurately reflect the purposes of the organization?
It can be shown thatwhere is a summation sign (sum over all products j other than product i), p is price, and Q is the compen- sated demand. Explain how this relation can be used to relate the elasticity of demand to cross-elasticities of demand. Use the formula to determine which cross- elasticity
Where demand curves are compensated (adjusted for income effects), it can be shown that b where Q is the quantity demanded, p is the price, and subscripts indicate the products i or j. Suppose p; Pj but Q 100 Q. What are the relative sizes of the two relevant cross-elasticities of demand? Why does
Suppose there are some industries in which the compet- itive equilibrium does not exist (the core does not ex- ist-see www.awlonline.com/carlton_perloff "Theory of the Core"). Should firms in these industries be al- lowed to collude under the antitrust laws?
Suppose Firm A is the only one that can sell in New 5 York. Firm A faces competition elsewhere in the coun- try. If Firm A can price discriminate, will the prices in New York differ from those elsewhere? Will there be a high correlation of price movements between New York and elsewhere? Is there
In United Shoe, the Court ruled that the 10-year leases adversely affected competition, in part, because they prevented other competitors from selling to a customer who had a United Shoe lease. Such a claim can be made of any contract. Identify circumstances where a long-term lease impedes
Suppose that all the buyers for a particular product live in Country 1, and all the firms that manufacture that product are in Country 2 . The foreign supply curve is Q=p. The demand curve is Q = 18-p. What is the competitive equilibrium? If Country 1 levies an import tariff, t, of $2, what are the
A competitive industry with an upward-sloping supply curve sells of its product in its Home country and Qin a Foreign country, so that the total quantity that it sells is Q Q+Q. No one else produces this product. There is no cost of shipping. Using graphs, show the prices and quantities in the two
Suppose Firm 1 in Country 1 produces Good 1 and Firm 2 in Country 2 produces Good 2.Both goods are sold only to consumers in other countries. The demand curves for the two goods are 4 = 15-2p+P2 92 = 15+ P - 2p2 Calculate the Bertrand equilibrium assuming that mar- ginal cost is zero. Now suppose
Use a diagram to illustrate the net gain to a country from taxing a foreign monopoly.
Can there be free riding and a gray market even if the retail prices in two countries are the same? If so, who would be engaged in shipping the product abroad?
Suppose two customers pay different prices for the identical physical product. Give a sufficient condition such that it is reasonable for an analyst to conclude that there is no price discrimination.
Is the establishment of an organized auction market more likely to benefit small firms or large firms?
Suppose that a firm has an upward-sloping marginal cost curve. Illustrate how the price-marginal cost mar- gin behaves as price increases. How does the price- average cost margin change as price increases?
Suppose an industry produces to order. What economic conditions would have to change for it to become a produce-to-stock industry?
Suppose a bakery must bake bread at a constant unit cost of production of $1 before it observes the demand for bread. It will have either 100 or 50 customers, and each outcome is equally likely. Each customer de- mands one loaf of bread, provided the price is $5 or less. What are the optimal price
Using an argument similar to that for monopolistic competition, show that firms operate on the downward- sloping section of their average cost curves for inven- tive activities.
If the government could only observe prices, quanti- ties, and royalty rates (but did not know the demand curves or the marginal cost curves), could it determine if a royalty was for a minor or major patent?
Graphically illustrate (using the benefit and cost curves in Figure 16 .1) the effect of a longer patent life on the incentive to invent.
What is the effect of a profits tax on the incentives to invent?
What is the effect of a sales (revenue) tax on the incen- tive to invent under a patent system?
Why does an artist destroy a lithograph plate after mak- ing a fixed number of copies?
Suppose the cost of producing a machine that lasts N pe- riods is C(N) N2, If the interest rate is 5 percent, what duration should the firm plan for its machine? De- scribe the conditions determining whether it should mod- ify its behavior if consumers can maintain the machine for one extra period
Explain how the analysis in Problem 1 is affected if four-wheel-drive tractors are close substitutes for other types of tractors.
Explain how the analysis in Problem I is affected if an investment tax credit (which lowers a firm's taxes in proportion to the amount spent on new capital) encour ages overconsumption of tractors.
Explain how the analysis in Problem 1 is affected if farmers never sell or buy used tractors (that is, transac- tion costs are too high for a used tractor market to de- velop).
Explain how the analysis in Problem 1 is affected if farmers can maintain tractors forever,
Use Example 15 .2 to calculate the elasticity of demand facing a monopoly producer of four-wheel drive trac- tors, assuming it rents in the future but has sold units in the past, of which 20 units remain. Show how the elas ticity is affected by the ratio of new to used equipment.
Using the model in Appendix 14A, suppose the inverse demand curve facing a monopoly is pa+a-bQ where a is the amount of advertising, and the cost function is mQ. Determine the optimal level of adver- tising and output.
What happens if a firm advertises, but only some peo- ple see the ads? Hint: Consider the tourists-and-natives model in Chapter 13 . 4 . A manufacturer uses vertical restraints in its contract with its dealer network (see Chapter 12) to encourage dealers to advertise locally. Under what conditions
What is the profit-maximizing rule for advertising if advertising depreciates (that is, consumers forget about it over time if not reminded)?
Use a graph to illustrate Shapiro's (1980) critique of the Dixit and Norman (1978) argument that if a mo- nopoly's advertising only informs consumers that a product exists rather than shifting tastes, there is too lit- tle advertising. Assume that demand is linear and mar- ginal costs are constant.
A firm spends a large amount on advertising that informs consumers of the brand name of its bananas.Should consumers conclude that its bananas are likely to be of higher quality than unbranded bananas? Why or why not?
Determine the equilibrium prices, quantities, and number of high- and low-price stores in the tourist-and-native model if consumers have downward-sloping, linear demand curves: $q = a - bp$, where $a$ and $b$ are positive constants.
Suppose that two economists write a textbook. Their publisher offers them royalties on sales of the book equal to $\alpha$ percent of the sales revenue. The economists are concerned. They believe that such a royalty system causes the publisher to sell less than the joint profit-maximizing number of
Suppose that there are two types of firms. All firms have U-shaped average cost curves, where $n$ firms have average costs of $AC(q)$ and $m$ firms have average cost curves of $AC(q) + k$. There are two types of consumers: The natives have zero search costs, and the tourists have very high search
Give an explanation for why the first-year depreciation of new cars is so high. (If you buy a new car and try to sell it in the first year—indeed, in the first few days after you buy it—the price that you get is substantially less than the original price.)
One possible measure of the degree of vertical integra- tion is the ratio of value added (sales minus material and energy costs) to sales. Contrast this measure for a mining firm and for a car producer
A woman wants to present a friend with a gift and, as an inside joke, wants to present it inside an empty red-and-white-striped barrel of Kentucky Fried Chicken.She tries to buy the empty carton from a fast food chain that sells Kentucky Fried Chicken and is told that it costs $10! The barrel full
A monopolistic producer uses a dealer network, in which it limits the number of dealers and restricts them to exclusive territories, to sell its product in another country. Some importers buy the product in the other country and sell it in the United States. Such imported products are said to be
If a pure profits tax (a percentage of the economic profits)is collected at the retail level, does a downstream monopoly's incentive to vertically integrate change?Does the incentive change if the tax is collected at both upstream and downstream levels? Does a sales tax (at the retail level) affect
Suppose a monopolistic upstream firm sells to a number of downstream firms, and one of these is a monopoly in its retail market. If vertical integration is impractical, what might the government do to reduce the distortions from the double monopoly markup?
Show that it is more efficient (larger joint profits) for a franchisor to collect from a franchisee a royalty that is a percentage of profits rather than sales. Why do most franchisors collect royalties as a percentage of sales?
What should public policy be toward vertical restraints? Do these restrictions necessarily hurt retailers and cons
Why do some manufacturers establish vertical restraints that give their dis- tributors some of their monopoly power?
What should public policy be toward vertical integration? We know that hori- zontal mergers sometimes have anticompetitive effects; is the same true for vertical mergers?
Why do firms vertically integrate? Why not rely on the market (other firms) to supply inputs and distribute products?
In Figure 10.3, if your costs of production are 31 each for halibut and pie, which pricing scheme-individual pricing, pure bundling, or mixed bundling-maximizes your profit?
A monopoly produces and delivers goods to consumers who are located at varying distances from the factory It costs m per unit to produce the good and $1 per mile to transport a unit of the good. Resales are impossible Calculate the price that a monopoly charges consumers at location r if demand is
Let the demand for Products 1 and 2 be q = 10-2p +p and q 10+P-2p2, where q; is the quantity of Good i and p; is the price of Good i. Assume produc- tion costs are zero. Calculate the prices that two sepa rate monopolies would charge when each regards the other's price as beyond its control.
Suppose a manufacturer sells a button-fastening ma- chine that saves a firm the labor cost of le per button sewn on shirts. Suppose firms differ in the total number of buttons they sew on. The manufacturer sells its ma- chine with a requirements tie-in that requires a pur- chaser to buy all its
A person who consumes X units of Good 1 and Yunits of Good 2 derives utility of Y+ 10X. Suppose the per- son has $100, the price of Y is S1, and the nonlinear ex- penditure for purchasing X units of Good I is X. What Xmaximizes that person's utility?
Look at www.awlonline.com/carlton perloff "De- rivation of the Optimal Two-Part Tariff," which dis- cusses the optimal two two-part tariffs to charge. Explain intuitively why it is optimal to charge a price equal to the marginal price of m to the consumer with the highest willingness to pay.
Suppose a firm gives coupons to selected consumers that entitle them to price discounts. Why might the firm limit the number of coupons that a customer can use on a single purchase?
Would a price-discriminating monopoly ever produce less than a nondiscriminating monopoly?
Suppose a consumer wants just 1 unit of a good and is willing to pay at most $10. Draw the demand curve and calculate the maximum consumer surplus that can be extracted. Suppose that there is a second consumer who also demands just 1 unit and is willing to pay at most $9 . A perfectly
else. Can you explain a senior-citizen discount from movie theaters by appealing to this "different product" argument? Suppose there are two groups of consumers and that it is optimal for a nondiscriminating monopoly to set p = $10. At that price, no one from the first group chooses to purchase.
It is often difficult to distinguish price discrimination from different prices for differentiated products. For example, if teachers recommend the magazines they read to students, they are helping to market the maga- zine. Because they save the magazine some marketing costs, it is profitable for
Suppose there are two types of customers. Show dia- grammatically that welfare can be either higher or lower under simple monopoly compared to discrimi- nating monopoly.
Suppose a firm has a monopoly in aluminum ingot and that it vertically integrates to produce its own alu- minum wire, as discussed in the chapter. Will any inde- pendent aluminum wire producers remain? Could any wire producer afford to buy the aluminum ingot at the high price and compete
Distinguish between zero profits and a price-cost mar- gin that equals zero.
(Difficult) Evaluate the following argument: "There ex- ist demand curves for which a monopoly would pass along cost increases in price on a one-for-one basis. Therefore, nothing can be inferred about the competi- tiveness of an industry by comparing price changes to cost changes." In your
Concentration ratios are typically a firm's share of do- mestic production. If the United States engages in more international trade, will such concentration measures lose meaning? Could this effect explain the vanishing of the price-concentration effect over time?
An industry has a price of p* and earns a rate of return on its capital. The industry is characterized by a fixed- proportions production technology (a fixed proportion of labor and capital is required to make each unit of output no substitution between labor and capital is possible). Let p and r
Why do empirical researchers often include the adver- tising-sales and the capital-sales ratios in equations ex- plaining performance?
Show graphically that, if a firm's MC = AC = a con- stant, it will produce a product if it is socially desirable for that product to be produced.
What is the effect of a cost-saving technological change on a monopolistic competition industry in which the cost curves facing each firm are C(q) = mq + F. where m is the constant marginal cost, and F is the fixed cost? Hint: A cost-saving technological change may be mod- eled as reducing m.
In Hotelling's town, if all firms are required to charge the same fixed price, describe the equilibrium location of three firms. Explain your answer. Now describe the equilibrium for four firms.
Explain and illustrate the following claim: "In our ex- ample, a monopolistic competition industry with homo- geneous products cannot be more than one firm away from the output sold at price equals marginal cost."
In an oligopolistic industry with homogeneous prod- ucts and firms with Cournot expectations, must profits fall when a new firm enters? Why or why not? (For an answer, see Seade, 1980.)
Compare the effect of a franchise tax (a lump-sum tax independent of the sales activity of the firm) on a mo- nopolistic competition industry to its effects on a mo- nopoly or competitive industry.
What is the relationship between the Stackelberg model and the dominant-firm-competitive-fringe model (Chap- ter 4)?
For n 2, 5, 10, 50, and 1,000, add columns to Table 6.2 for:a. Market elasticity,e, which equals (doldp) (p/O).b. Lerner's measure of market power, (p-MC)lp.c. Consumer surplus.d. Social welfare consumer surplus + industry profits.e. Deadweight loss (the amount by which social welfare is less than
What happens to price and output in the Cournot, Bertrand, and Stackelberg models if marginal costs in- crease by 10 percent?
What are the best strategies for Players 1 and 2 if each chooses between setting a low price or a high price and the payoffs are 5 if both firms charge the high price and zero for all other combinations of strategies? [Hint: Write down the 2 x 2 normal-form representation of this game and look for
In the Cournot example in this chapter, fixed costs were assumed to be zero and marginal (average) costs were constant. What additional complications are raised if the cost functions have the usual U-shape?
Under what conditions are the Cournot and Bertrand equilibria the same?
In what way does a cartel consisting of only some firms in a market correspond to the dominant firm model de- scribed in Chapter 4?
(Problem based on Appendix 5A.) Show that a cartel's price falls as the number of noncartel firms () in- creases.
(Problem based on Appendix 5A.) Show that the sum of a cartel's output plus the output of noncartel firms is less than the competitive output and that the corre- sponding price is higher than the competitive price.
Use a graph to show why an increase in the market de- mand elasticity reduces a cartel's monopoly power. Show how an increase in the market demand elasticity affects the elasticity of the residual demand curve.
Using the data in Example 5 .4 , calculate the market de- mand elasticity for automobiles in the mid-1950s. For large changes in price and quantity, an arc elasticity is used. One common method of calculating an arc elas- ticity is to use the midway point between the two price- quantity pairs: (p.
Suppose cartel members have lower (average and mar- ginal) costs than noncartel firms. Draw the residual de- mand curve facing the cartel. (What assumptions are you making about entry?) Show on the graph the car- tel's profit-maximizing output and price. Could the car- tel drive the other firms out
Would a profit-maximizing dominant firm ever pro- duce more than if it were a monopoly? Hint: Show the behavior of both a monopoly and a dominant firm (in the no-entry model) on the same graph and note where the marginal revenue curves cross.
How would the no-entry model diagrams (Figure 4.6) change if fringe firms had the usual U-shaped average and marginal cost curves? Assume that because of a barrier to entry, there are only fringe firms. Describe the types of possible equilibria.
By showing the behavior of both a monopoly and a dominant firm in the same graph, show that monopoly profits are greater than the profit of a dominant firm in the no-entry equilibrium (MC). Show how much con- sumers benefit from buying from a dominant firm- competitive fringe rather than from a
Suppose the Environmental Protection Agency sets new requirements that raise the (fixed) costs of report- ing compliance with pollution control rules (Pashigian 1984). How would this change affect (a) the market price, (b) the number of fringe firms, (c) total output, and (d) the dominant firm's
Suppose the demand curve for corn is Q(p) = 10-p. Suppose that one firm owns all five units of corn in the world and has zero marginal cost. Does a monopoly sell less output than would be sold in a competitive market in which 100 firms each owns 0.05 units?
If the demand curve is Q(p) =p, what is the elasticity of demand? If marginal cost is $1 and e = -2, what is the profit-maximizing price?
If the demand curve is Q(p) = 5/p, what is the elastic- ity of demand? What is total revenue when p = $1 and when p = $30? If production costs $1 per unit, and the smallest production level is 1 unit, how much should the monopoly produce?
Suppose that the supply of football players is elastic at the lowest salary levels paid. Would a monopsony of football players restrict output?
If the demand curve is Q(p) 10-p and the marginal cost is constant at 4, what is the profit-maximizing mo- nopoly price and output? What is the price elasticity at the monopoly price and output?
Suppose the government knows the private and social marginal cost curves, MC, and MC, but it knows the demand curve imperfectly. The government believes that the demand curve is either abQ ora- bo The firms know the demand curve. Would the govern- ment do better using a tax or an output
When is a firm's shutdown point equal to the minimum point on its average cost curve?

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Modern Industrial Organization 3rd Edition Dennis W. Carlton, Jeffrey M. Perloff - Solutions

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