PART 2. Are existence of profits / higher rates of return a sure sign of market power and DW nefficiency? magine two industries: ndustry A: All firms use a common technology with the cost function c(a) = 50 + 10q + 2q". ndustry B: Most firms use a common technology with the cost function c(a) = 50 + 10q + 2q', but two irms have, for some unexplained reason, a superior technology c(q) = 10 + 10q + q. The market demand is given by Q(P) = 80 –P in both industries. Your task is to compare the long run equilibrium in these industries: A. Which industry will have a higher profit/revenue ratio (which is used as a proxy for the market power index L when only industry totals for profit and revenues are available) 3. In which industry do we have higher concentration as measured by HHI? E. How is the profit/revenue ratio which is a proxy for L (as defined in part a above) correlated with HI across these two industries?

PART 2. Are existence of profits / higher rates of return a sure sign of market power and DW nefficiency? magine two industries: ndustry A: All firms use a common technology with the cost function c(a) = 50 + 10q + 2q". ndustry B: Most firms use a common technology with the cost function c(a) = 50 + 10q + 2q', but two irms have, for some unexplained reason, a superior technology c(q) = 10 + 10q + q. The market demand is given by Q(P) = 80 –P in both industries. Your task is to compare the long run equilibrium in these industries: A. Which industry will have a higher profit/revenue ratio (which is used as a proxy for the market power index L when only industry totals for profit and revenues are available) 3. In which industry do we have higher concentration as measured by HHI? E. How is the profit/revenue ratio which is a proxy for L (as defined in part a above) correlated with HI across these two industries?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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