Problem Set 9 (75 points) 1. A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity the same and just increase his profit." Do you agree? Use a graph to illustrate your answer. The argument is incorrect. As the graph shows, a reduction in marginal cost will cause a monopolist to reduce his price.
2. 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 as "x-inefficiency."
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Gardner using economic theory to justify your answer. Economic theory suggests that price should be equal to MC to achieve allocative efficiency. P = 28 - 0.0008Q MC = 0.0012Q 28 - 0.0008Q = 0.0012Q 28 = 0.002Q Q = 14,000 P = 28 - 0.0008(14,000) P = 28 - 11.20 P = 16.80 c. Compare the economic efficiency implications of (a) and (b) above. Your answer need not include numerical calculations, but should include relevant diagrams to demonstrate deadweight loss.
In (a), the price is higher ($20 as opposed to $16.80), and quantity lower (10,000 as opposed to 14,000). The monopolistʹs higher price and smaller quantity result in a deadweight loss as shown below.
5. A pure monopsony buyer of a resource has a marginal value curve for the resource expressed as: MV = 100 - 0.4Q. Its marginal and average expenditure functions are: ME = 20 + 0.023Q AE = S = 20 + 0.011Q. a. What is the price and quantity that would prevail in a competitive market? The QC is computed as follows: Equate S to MV. 20 + 0.011Q = 100 - 0.4Q 0.411Q = 80 QC = 194.65 PC = 20 + 0.011(194.65) = 22.14 b. What quantity is purchased by a monopsonist, and at what price? The QM is computed as follows: Equate ME to MV. 20 + 0.023Q = 100 - 0.4Q 0.423Q = 80 QM = 189.13 PM = 20 + 0.011(189.13) = 22.08 c. Compute the deadweight loss that results when the firm acts to maximize profit (that is, takes advantage of its monopsony power). Compute the height of MV between HM and HC. HM = 100 -
The economy of Brazil is in the top ten largest economies along with the United States. It is the biggest in Latin America. Actually it is the seventh largest in the world. Brazil has used its newly found economic mechanism to syndicate its outcome in South America and show more of a role in the Global Businesses. The Obama Administration’s National Security Strategy recognizes Brazil as a developing center of effect, and greets the management of the country’s joint and global issues. The United States and Brazil associations mostly have been good in the recent years. But Brazil has other strengthening relations with neighboring countries and expanding ties with nontraditional partners in the South that’s developing.
A corporate business enterprise is established under a specific legal framework where laws governing the operations and functioning of the enterprise are outlined. The activities of the enterprise are monitored and therefore such an enterprise is recognized by law. This is important due to the fact that legal suits can be filed by the enterprise within the provisions of the law.
The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the
1. Describe two examples of important things that financial planning skills can help you do, and explain why these things are important to you personally. (4-6 sentences. 2.0 points)
We decided to decrease the price of mountain bike production from $134 per bike to $108. The difference of $26 for 11,000 units results in a saving of almost $300,000. In the meanwhile, we also decided to dump our finish goods inventory, incurring a loss of $175,000. We decided to increase our capacity from 20,000 to 27,500 and efficiency from 1,000,000 to 2,000,000. We want to avoid increasing capacity significantly in order to avoid low efficiency. At the same time we want to keep our wastage at a minimum. We reduced our retail margin for the bike and sports store to 20% while reducing the discount stores to 27%. These new retail margins
Despite the city’s positive response to the coffee shop’s renovation, other businesses in the area have not followed suit in renovating the many decrepit buildings and abandoned lots. How might the presence of an externality be in part the cause of this?
3. Compare the financial results from Question 1 and 2 and highlight your observation regarding contribution. Based on your calculations, what is the relationship between volume and cost?
2. If the department that produces Item 345 was a profit center and if you were the manager of that department, would it be to your financial advantage to lower the price?
This assignment has a maximum total of 100 marks and is worth 10% of your total grade for this course. You should complete it after completing your course work for Units 1 through 5. Answer each question clearly and concisely.
Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?
c) What is the deadweight loss due to profit-maximizing monopoly pricing under the following condition.
. Through the process of reading, I learned many things about the economy. First of all, I learned that it is a much more difficult decision to come to in regards of how much government involvement in the nation’s economy is enough, how much is too little, and how much is not enough. I also learned that trying to keep the economy stable and productive is a constant and difficult struggle, and that it is often difficult to even know what needs to or can be done in order to stabilize it. While I find economics to be somewhat boring (I am a music major and largely emotionally driven, which means that my entertainment is usually emotionally involving somehow), I actually enjoyed how Wheelan explained economics in this book. While I would not read it for fun, reading this book as an assignment was not painful.