1) Consider the following hypothetical industries which are both comprised by 8 firms. Inindustry A sales are given by 1000, 800, 600, 600, 450, 200, 100, 100 and in industry Bby 2000, 500, 500, 200, 150, 150, 150, 100.(a) Calculate the five-firm concentration ratio for each industry.(b) Calculate each industry's H Index and the numbers equivalent. How can the latter beinterpreted?(c) Which industry do you think exhibits the most concentration?2) We defined the Lerner Index as LI = 1/µ where u is the absolute value of the elasticity ofdemand. We also showed that LI can be alternatively expressed as (P – MC)/P . Use theserelationships to show that LI can never exceed 1. What does this imply is the minimumdemand elasticity we should ever observe for a monopolist?3) Consider a market comprised of three firms. Firm 1 produces and sells 23 units per period.Firm produces and sells 19 units per period, while firm 3's periodic production and salesare 15 units. The (inverse) market demand is estimated to be: P = 100 – Q, where Q = totaloutput = q1+ q2+ q3. Determine the market price and the elasticity of market demand aswell as the market share of each firm. Now use equation (3.5) to determine each firm'smarginal cost. What relation do you find between marginal cost and market share?4) Monopoly Air is on record with the local transportation authority arguing that there is nomarket need and no market room for an additional air service because even now, MonopolyAirplanes are flying with only 60 percent of the seats typically booked. Hence, it argues thatthe market is not large enough to sustain two efficient-sized air carriers.Evaluate this argument. Why might Monopoly Air flights be so under-booked? Does thisprove that there is no “market room" for a new competitor?5) Let the demand of an industry be described by Q(P)=48-P.(a) Calculate the market output and priçe under monopoly assuming that themonopolist's cost function is C(Q)=Q²/5+6Q+180. Find social welfare.(b) Consider a perfectly competitive industry with n firms in which each firm's costfunction is C(q)=2q< +6q+18. Find the aggregate supply curve and compare to themonopolist's marginal cost in (a).(c) Calculate the market output and price in the long run under perfect competitionassuming that each firm's cost function is in (b). Find social welfare and compare to themonopoly in (a).(d) Determine the Lerner index corresponding to the industries in (a) and (c).6) A monopolist with marginal costs of 4 sells to two different groups of consumers. Eachgroup has ten consumers. Individual demand of consumers in group A is given byQA(P)=20-P and for consumers in group B by QB(P)=16-P.(a) Suppose the monopolist cannot prevent arbitrage. Is price discrimination possible?Calculate the market output(s), price(s) and profits.(b) Suppose the monopolist can prevent arbitrage but does not know the type of consumers.Is price discrimination possible? Calculate the market output(s), price(s) and profits.(c) Suppose the monopolist can prevent arbitrage between groups but not within. Isprice discrimination possible? Calculate the market output(s), price(s) and profits.(d) Suppose the monopolist can identify consumers and prevent arbitrage both betweenand within groups. Is price discrimination possible? Calculate the market output(s),price(s) and profits.

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1) Consider the following hypothetical industries which are both comprised by 8 firms. In industry A sales are given by 1000, 800, 600, 600, 450, 200, 100, 100 and in industry B by 2000, 500, 500, 200, 150, 150, 150, 100. (a) Calculate the five-firm concentration ratio for each industry. (b) Calculate each industry's H Index and the numbers equivalent. How can the latter be interpreted? (c) Which industry do you think exhibits the most concentration?

1) Consider the following hypothetical industries which are both comprised by 8 firms. In industry A sales are given by 1000, 800, 600, 600, 450, 200, 100, 100 and in industry B by 2000, 500, 500, 200, 150, 150, 150, 100. (a) Calculate the five-firm concentration ratio for each industry. (b) Calculate each industry's H Index and the numbers equivalent. How can the latter be interpreted? (c) Which industry do you think exhibits the most concentration?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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