Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Chapter 13, Problem 1BCQ
To determine

Concept Introduction:

Monopoly: This refers to the condition in a market where there is a single person or company who sells a particular good or service and there is no competitor. In a monopoly, the supplier is free to fix any price, since the consumers have no alternative available.

Expert Solution & Answer
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Explanation of Solution

  • In the given case, the online retailers like A Company earn surplus with the sale of books from top authors.
  • The publishers like H Company pay a share of their sales to the online retailers. Hence, the retailers earn surplus from them too.
  • The publishers earn by publishing the books from the best-selling authors. The books published are in the form of paper, e-books and hardcover.
  • Here, the major share of revenue, which is 30-50% of A Company, comes from the sales of the books published by H Company.
  • The surplus by authors is earned by the sale of their books to the publishers to further publish the copies for the consumers.

Conclusion:

Thus, the surplus is earned by authors, publishers and retailers in the above given manner.

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As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend.  1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers.  2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.
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