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business
the macro economy
The Economy Today 16th Edition Bradley R. Schiller - Solutions
Use the graph to answer the following questions: LO-(a) What is the profit maximizing quantity?Suppose that there are external costs equal to $0.01 per kilowatt-hour.(b) Calculate the social marginal cost to produce the profit-maximizing quantity.(c) What is the socially optimal
How high would its pollution control costs have to be before a California power plant would “pay to pollute” a ton of carbon dioxide (Front Page Economics “ Paying to Pollute in California”)? LO-
EPA says the value of a human life is $9.4 million, measured from birth to death. If life expectancy is 78 years, what is the value of the remaining life of an 18-year-old person? LO-
(a) If the Indian Point nuclear plant (Front Page Economics “ Cut the Power to Save the Fish”)were charged one-tenth of a mill (0.01 cent) for every gallon of water it used, how much would it have paid in annual emission fees? LO-(b) If the cost of building and operating a closed-cycle
Over 1 billion people in the world don’t have access to electricity, relying mostly on fire for heat and cooking. Discuss the benefits and costs of carbon caps that limit the construction of new power plants in less developed countries. LO-
Should coal mining be prohibited in order to reduce carbon emissions? LO-
If a high per-bag fee were charged for garbage collection, how would consumers respond?LO-
“The issuance of a pollution permit is just a license to destroy the environment.” Do you agree?Explain. LO-
What economic costs are imposed by mandatory sorting of trash (Front Page Economics “Recycling Wastes Money”)? LO-
Who benefited from the closure of the Indian Point nuclear plant (Front Page Economics “ Cut the Power to Save the Fish?”)? Is the environment now better? LO-
Does anyone have an incentive to maintain auto exhaust control devices in good working order? How can we ensure that they will be maintained? Are there any costs associated with this policy?LO-
Why would auto manufacturers resist higher fuel efficiency standards? How would their costs, sales, and profits be affected? LO-
Should we try to eliminate all pollution? What economic considerations might favor permitting some pollution? LO-
What are the economic costs of the externalities caused by air toxins (Front Page Economics “ Air Pollution Kills”), beach closings, or thermal pollution (Front Page Economics “ Cut the Power to Save the Fish?”)? How would you measure their value? LO-
If “green” gasoline were sold for 20 cents per gallon more than “dirty” gasoline, would you buy it?How much of a premium per gallon do you think most people would pay? LO-
Decisions for Tomorrow: Suppose the benefits of a regulation related to workplace safety is $10 million per year and the associated administrative costs are $200,000, compliance costs are $4 million, and efficiency costs are $5 million per year. Should deregulation occur? LO-
According to World View “ JetBlue Looks to London,” if a landing slot in London costs$20,000 per flight and each flight carries 300 passengers, calculate the percent of the per-person ticket price allocated to the slot fee for LO-(a) JetBlue if the average price of a JetBlue flight is
Suppose a corporation has two subsidiaries, one of which is unregulated and sells all of its output to the other, regulated subsidiary. Permitted profits at the regulated subsidiary are equal to 10 percent of total costs. Here is the initial profit picture for the subsidiaries: LO-If the
If the average U.S. worker produces $120,000 of output per year, what is the annual opportunity cost of the federal regulatory workforce ( Table 13.1)? LO-
According to Front Page Economics “ Sleep Rules Raise Trucking Costs,” how much will annual shipping costs increase for each saved life? LO-
Suppose a natural monopolist has fixed costs of $15 and a constant marginal cost of $3. The demand for the product is as follows: LO-Under these conditions, (a) What price and quantity will prevail if the monopolist isn’t regulated?(b) What price–output combination would exist with
What happens to profits (or losses) when new technology reduces average total costs (shifts ATC downward in Figure 13.2) in LO-(a) An unregulated natural monopoly?(b) A price-regulated natural monopoly without a subsidy?(c) A profit-regulated natural monopoly?
Using the graph, identify output and price and calculate profits for LO-(a) An unregulated natural monopoly.(b) A monopoly that is regulated according to price-efficiency (p = MC).(c) A monopoly that is required to provide a minimum service of 60. PRICE OR COST (dollars per unit) 10
In Figure 13.2, LO-(a) How much profit does an unregulated monopolist earn?(b) How much profit would be earned if price efficiency (marginal cost pricing, p = MC) were imposed?
Suppose a company has $500 of fixed costs and a constant marginal cost of $0.05. What are average total costs (ATC) at LO-(a) Output of 10 units?(b) Output of 100 units?(c) Output of 1,000 units?
Has JetBlue started service to London? What has happened to air fares on the New York–London route? LO-
How could a local phone or cable company reduce service quality if forced to accept price ceilings?LO-
The Telecommunications Act of 1996 requires local phone companies to charge “reasonable” rates for transmission access. What is a “reasonable” rate? LO-
How would you put dollar values on the benefits and costs of truck safety regulations (Front Page Economics “ Sleep Rules Raise Trucking Costs”)? Do benefits exceed costs? LO-
Prior to 1982, AT&T kept local phone rates low by subsidizing them from long-distance profits.Was such cross-subsidization in the public interest? Explain. LO-
Why would a profit-regulated firm want to sell itself inputs at inflated prices? Or increase wages?LO-
Given the inevitable limit on airplane landings, how should available airport slots be allocated? How would market outcomes be altered? LO-
What makes cable companies natural monopolies? How did cable profits affect the emergence of satellite transmissions? LO-
New York City has limited the number of taxicabs for decades. Were taxi companies natural monopolies? What was the purpose of such regulation? Why were Uber, Lyft, and other ride-sharing companies so eager to enter the industry? LO-
Why are railroads natural monopolies? What limits their pricing power? LO-
Decisions for Tomorrow: On the following graph, show the effect of a successful advertising campaign on the firm’s cost, demand, and marginal revenue curves. LO- PRICE OR COST (dollars per unit) MC MR QUANTITY (units per period) ATC Demand
Decisions for Tomorrow: If Coke sells approximately 2 billion sodas globally per day, according to Front Page Economics “ The Cola Wars: It’s Not All Taste,” how much is Coke spending on advertising per soda? LO-
On the accompanying graph, identify each of the following market outcomes:LO-(a) Short-run equilibrium output in competition.(b) Long-run equilibrium output in competition.(c) Long-run equilibrium output in monopoly.(d) Long-run equilibrium output in monopolistic competition. PRICE OR COST
(a) Use the accompanying graph to illustrate the short-run equilibrium of a monopolistically competitive firm. LO-(b) At that equilibrium, what is(i) Price?(ii) Output?(iii) Total profit?(c) Identify the long-run equilibrium of the same firm.(d) In long-run equilibrium, what is
In Figure 12.3, at what output rate is economic profit equal to zero? LO-
If Starbucks raises its price by 6 percent and McDonald’s experiences a 0.3 percent increase in demand for its coffee, what is the cross-price elasticity of demand? LO-
According to Front Page Economics “ Starbucks Raises Prices Again,” LO-(a) By what percent did Starbucks increase the price of a tall cup of brewed coffee (use the midpoint method)?(b) Calculate the price elasticity of demand for brewed coffee if 50% of the decline in traffic was due
What is the concentration ratio in an industry with the following market shares? LO- Firm A 13.2 Firm C 4.2 Firm E 2.7 2.7 Firm G 1.6 Firm B 11.4 Firm D 3.6 3.6 Firm F Firm F 2.2 Other firms 61.1
According to World View “ The Best Global Brands,” what gives brand names their value?LO-
Why isn’t the video-streaming market considered monopolistically competitive? LO-
Why isn’t the video-streaming market considered to be monopolistically competitive (see Front Page Economics “ Streaming Wars Heat Up” in Chapter 11)? LO-
How would our consumption of cereal change if cereal manufacturers stopped advertising? Would we be better or worse off? LO-
What happens to the demand curve facing a Starbucks shop when a Dunkin’ store opens next to it?What can Starbucks do to maintain its business? LO-
Why would Starbucks invest $20 million in a new “Roastery” if the coffee-shop market is already saturated (Front Page Economics “ Coffee Shops Seeking New Identities”)? LO-
Front Page Economics “ The Cola Wars: It’s Not All Taste” suggests that most consumers can’t identify their favorite cola in blind taste tests. Why then do people stick with one brand? What accounts for brand loyalty in bottled water (Front Page Economics “ Selling ‘Pure Water’:
If one gas station reduces its prices, must other gas stations match the price reduction? Why or why not? LO-
Name three products each for which you have (a) high brand loyalty and (b) low brand loyalty.LO-
Why do 4,000 new pizzerias open every year? Why do just as many close? LO-
If the price elasticity of demand for Starbucks is less than 1.0, why doesn’t it increase prices a lot more? LO-
Decisions for Tomorrow: According to Front Page Economics “ Feds Approve T-Mobile–Sprint Merger,” calculate the value of the HHI LO-(a) Prior to the T-Mobile–Sprint merger.(b) After the merger but prior to the Dish Network transfer.
Decisions for Tomorrow: According to Front Page Economics “ Joe Camel Acquires Newport,” what were the values of LO-(a) The concentration ratio in the cigarette industry(i) Prior to the merger?(ii) After the merger?(b) The maximum value of the Herfindahl-Hirschman Index(i) Prior to the
What is the price elasticity of demand between points F and G in Figure 11.2 (use the midpoint method)? LO-
Suppose that the following schedule summarizes the sales (demand) situation confronting an oligopolist: LO-(a) Draw the demand and marginal revenue curves facing the firm.(b) Identify the profit-maximizing rate of output and price in a situation where marginal cost is constant at $11 per
Suppose the payoff to each of four strategic interactions is as follows: LO-(a) If the probability of rivals matching a price reduction is 98 percent, what is the expected payoff of a price cut?(b) If the probability of rivals reducing price when you don’t reduce your price is 5 percent,
How large would the probability of a “don’t match” outcome have to be to make a Universal price cut statistically worthwhile? (See expected payoff in section “ Expected Gain (Loss).”)LO-Page 272
Assume an oligopolist confronts two possible demand curves for its own output, as illustrated here. The first (A) prevails if other oligopolists don’t match price changes. The second (B) prevails if rivals do match price changes. LO-(a) By how much does quantity demanded increase if the
If the price of a medallion is a proxy for the profits of the NYC taxi industry, by what percentage did the industry’s profits decline when Uber entered the market? LO-
According to Front Page Economics “ Dr Pepper Targets Football Fans,” calculate the sales revenue that comes from Dr Pepper Snapple Group’s share of the soda market. LO-
Assume that during the oil-price war, global oil production increased from 90 million to 97 million barrels per day, causing the price of oil fall by 50 percent. Calculate the implied price elasticity of oil demand (see World View “ Nations Scrambling to End Oil-Price War”).LO-3.(a)
According to Table 11.2, in how many markets do fewer than four firms produce at least 80 percent of total output? LO-
What has happened to cocoa prices since COPEC was formed (see World View “ COPEC: The New Cocoa Cartel”)? LO-
Why did the price of NYC taxi medallions decline so much when Uber started ride-sharing service in New York? Why are the medallions still worth $200,000? LO-
Would we be better off if Facebook and Google were forced to break up into smaller companies?How could we do that? LO-
Using the payoff matrix in Table 11.4, decide whether Universal should cut its price. What factors will influence the decision? LO-
The Ivy League schools defended their price-fixing arrangement (see Ivy League Colleges in Coordination Problems section) by arguing that their coordination assured a fair distribution of scholarship aid. Who was hurt or helped by this arrangement? LO-
What reasons might rival airlines have for not matching Delta’s fare increase? (See Front Page Economics “ Delta Rolls Back Fare Hike.”) LO-
What evidence of economies of scale is cited in the proposed cigarette merger (Front Page Economics “ Joe Camel Acquires Newport”)? Should the acquisition be approved?LO-
How might the high concentration ratio in the credit card industry ( Table 11.2) affect the annual fees and interest charges for credit card services? LO-
If an oligopolist knows rivals will match a price cut, would it ever reduce its price? LO-
Why does Dr Pepper depend on advertising to gain market share? (See Front Page Economics “Dr Pepper Targets Football Fans.”) Why not offer cheaper sodas than Coke or Pepsi? LO-
What entry barriers exist in (a) the fast-food industry, (b) video streaming service, (c) the auto industry, (d) marijuana distribution, (e) ride-sharing service, and (f) beauty salons? LO-
How many bookstores are on or near your campus? If there were more bookstores, how would the price of new and used books be affected? LO-
Decisions for Tomorrow: Identify the market and the barrier to entry that best matches the case studies presented in Decisions for Tomorrow. LO-(a) Microsoft.(b) AT&T.(c) Google.
The following table summarizes the weekly sales and cost situation confronting a monopolist:LO-(a) Complete the table.(b) Graph the demand, MR, and MC curves on the following graph.(c) At what rate of output are profits maximized?(d) What are the values of MR and MC at the
In 2019 Google had total profits of approximately $40 billion; ninety percent of this profit came from online advertising. LO-(a) How much profit did Google make from online ads?(b) If online search was a perfectly competitive market, how much would annual profits be in the long run?Page
What was the profit per unit for the drug Daraprim (Front Page Economics “ Drugmaker Hikes Price of AIDS Drug 5,000 Percent!”): LO-(a) Before Turing increased the price?(b) After Turing increased the price?(c) What barrier to entry typically exists in the pharmaceutical market?
According to Front Page Economics “ US FTC Enables Boeing–Lockheed ‘Monopoly,’”LO-(a) What was the annual cost savings for the rocket monopoly (in $ millions)?(b) How much of this savings did the FTC expect to be reflected in reduced rocket prices?(c) According to economic
If the on-campus demand for soda is as follows: LO- Page 243and the marginal cost of supplying a soda is 50 cents, what price will students end up paying in (a) A perfectly competitive market?(b) A monopolized market? Price (per can) $2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 Quantity
The following table indicates the prices various buyers are willing to pay for a Ford F-150 truck:LO-The cost of producing the trucks includes $40,000 of fixed costs and a constant marginal cost of $10,000.(a) Graph below the demand, marginal revenue, and marginal cost curves.(b) What is
Live Nation sold 500 million concert tickets in 2019 at an average price of $96. LO-(a) How much total revenue did the company take in?(b) How much of this revenue came from fees (see Front Page Economics “ Live Nation Drives Up Ticket Prices”)?
Identify the barrier to entry that best matches the following news stories about monopolies:LO-(a) Front Page Economics “ US FTC Enables Boeing–Lockheed ‘Monopoly.’”(b) Front Page Economics “ Drugmaker Hikes Price of AIDS Drug 5,000 Percent!”(c) World View “ Russia’s
Given the following information about demand for a local utility service, graph the demand and marginal revenue curves. LO- Price $6 5 4 3 2 Quantity demanded 10 50 90 150 210
Use Figure 10.3 to answer the following questions: LO-(a) What is the highest price the monopolist could charge and still sell fish?(b) What is total revenue at that highest price?(c) What rate of output maximizes total revenue (partial unit okay)?(d) What rate of output maximizes total
Is the demand for a life-saving drug like Daraprim (Front Page Economics “ Drugmaker Hikes Price of AIDS Drug 5,000 Percent!”) likely to be elastic or inelastic? How does that affect the pricing decision of a monopolist? LO-
How can concert promoters use price discrimination to increase profits? LO-
How might consumers have benefited from the merger of XM and Sirius (Front Page Economics “A Sirius Mistake? FCC Approves XM–Sirius Merger”)? How might they have lost?LO-
What similarities exist between the AT&T, Microsoft, and Google antitrust cases? LO-
What entry barriers helped protect the following? LO-(a) The Russian sable monopoly (World View “ Russia’s Sable Monopoly Persists”).(b) The Live Nation monopoly (Front Page Economics “ Live Nation Drives Up Ticket Prices”).(c) Turing Pharmaceutical (Front Page Economics “
What would have happened to iPad prices and features if Apple had not faced competition from iPad clones ( Chapter 9)? LO-
How does individualized price discrimination by car dealers affect their total revenue and profits?LO-
Why don’t monopolists try to establish “the highest price possible,” as many people allege? What would happen to sales? To profits? LO-
According to the Federal Trade Commission (Front Page Economics “ US FTC Enables Boeing–Lockheed ‘Monopoly’”), how often do monopolies lead to higher prices? Why, then, did the rocket merger get approved? LO-
The objective in the game of Monopoly is to get all the property and then raise the rents. Can this power be explained with market supply and demand curves? LO-
Decisions for Tomorrow:(a) If the average total cost of producing AirPods was $64 in 2016–2017, how much profit did Apple make that first year of sales? (See “ Decisions for Tomorrow” section.)(b) Suppose the profit per unit in 2021 was half that of 2016–2017. If Apple sold 100 million
Suppose the competitive tablet market is in the long-run equilibrium. If at this equilibrium, the typical firm produces 20,000 tablets per month, total costs for this production are $1,800,000, and the minimum of the average variable costs is $70, what price will LO-(a) Induce entry into the
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