Questions
1) Explain the market adjustment when P < LAC and firms have identical costs.
2) Explain the market adjustment when firms have different costs.
3) What is the opportunity cost of land?
Question:
Describe the long-run elasticity of supply in a decreasing -cost industry.
Questions
Is this an increasing or a constant-cost industry? What would you predict about the elasticity of
supply?
What is the impact of controlling entry into the taxicab market?
Is there a more efficient way to increase farmer's income by A + B + D?
Questions:
• How could the government reduce the cost and still subsidize the farmer?
• Which is more costly: supports or acreage limitations?
Question:
Would a country be better off or worse off with a quota instead of a tariff?
Question
Suppose: Ed = -2, how much would the price change?
Answer:P=MC/1+(1/Ed)
What would happen to profits?
Question: Do convenience stores have higher profits than supermarkets?
Why do some firm's have considerable monopoly power, and others have little or none?
A firm's monopoly power is determined by the firm's elasticity of demand. The firm's elasticity
of demand is determined by:
1) Elasticity of market demand
2) Number of firms
3) The interaction among firms
Question: What about a monopoly?
Question: In this case, what is likely to happen to price?
Question How can the firm capture the consumer surplus in A and sell profitably in B?
Answer Price discrimination Two-part tariffs Bundling
Question: Why would a producer have difficulty in achieving first-degree price
discrimination?
Answer
1) Too many customers (impractical)
2) Could not estimate the reservation price for each customer
HOW TO PRICE A BEST SELLING NOVEL
What Do You Think?
1) How would you arrive at the price for the initial release of the hardbound edition of a
book?
2) How long do you wait to release the paperback edition? Could the popularity of the
book impact your decision?
3) How do you determine the price for the paperback edition?
Question
If MC = 0, would mixed bundling still be the most profitable strategy with perfect negative
correlation?
Questions
When EA is large, do you advertise more or less?
When EP is large, do you advertise more or less?
If the market became competitive, what would happen to output and price? Should
monopolistic competition be regulated?
Questions
1) Why is the demand for Brand X more price inelastic than for Brand Y?
2) Is there much monopoly power in these two markets?
3) Define the relationship between elasticity and monopoly power.
Question
What are the possible rival responses to a 10% price cut by an automobile company?
Questions
If the firms are not producing at the Cournot equilibrium, will they adjust until the Cournot
equilibrium is reached?
When is it rational to assume that its competitor's output is fixed?
Assume the firms compete with price, not quantity.
How will consumers respond to a price differential?
Why wouldn't each firm set the collusion price independently and earn the higher profits that occur with explicit collusion?
Question Why will both firms both choose $4 when $6 will yield higher profits?
An example in game theory, called the Prisoners' Dilemma, illustrates the problem oligopolistic firms face.
Question What will happen to the value of MRPL when more workers are hired?
Question: How would this impact the quantity demanded for labor?
Question: How will the decrease in the wage rate impact the demand for labor?
Question: How would a change to a non-competitive market impact the derivation of the market demand for labor?
Question: How would the long-run price elasticity of demand compare to the short-run?
Question: What would be the economic rent if SL is perfectly elastic or perfectly inelastic?
The percentage of personnel working in public sector has been declining.
Shortages of skilled personnel has occurred? Why?
