Chapter 10

1) What is the principal-agent problem as applied to corporations? What are three major ways that corporations can cope with the principal-agent problem? (5 pts)

2) What are the four types of markets? Give a brief description of each type. Describe the conditions under which monopoly exists. Give two examples. (5 pts)

3) What is the Herfindahl-Hirschman Index and what does it measure? What is the difference between a four-firm concentration ratio and a Herfindahl-Hirschman Index? (5 pts)

4) The table below shows the percent of sales held by the four largest firms in an industry. (5 pts)

Company

Market share

(percent of sales)

h} D E M Price and can [dollars paw ml] a:- 2D 4D {:0 ED 1 DC! Quantity [mauls par day] 150 120 Price and cost (dollars per household) 90 60 LRAC 30 MC MR D 0 10 20 30 40 50 Quantity (thousands of households per month)