Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 13, Problem 2.10P
To determine
Explaining the concept lowering
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1. Which of the following companies most closely resembles a monopoly?
Walmart
Microsoft
Starbucks
McDonald's
Question Source: Chiang 4e - Economics Princip
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In advertising, a business is not only making consumers aware of the existence of the product and its positive features but is purposely trying to persuade consumers to purchase the product. As a piece of economics which of the following best characterises what advertisers are trying to do?
(a) Shift the demand curve to the right and make it more income elastic;
(b) Shift the demand curve to the right and make it less income elastic;
(c) Shift the demand curve to the right and make it less price elastic;
(d) Shift the demand curve to the right and make it more price elastic.
Does a monopolist have a supply curve? Explain your answer.
What are the different types of price discrimination?
Differentiate between an oligopoly and a monopolistic competition (i.e. number of firms and the degree of product
differentiation).
How are skilled and unskilled workers in an economy likely to be affected if the firms adopt skill-biased
technologies?
Chapter 13 Solutions
Principles of Economics (12th Edition)
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- A free market is one where decisions regarding what and how much to produce are made by the market itself. This market is made up of buyers and sellers negotiating prices for goods and services. It is generally accepted that there are four degrees of competition within a free-market system. These include perfect competition, monopolistic competition, oligopoly, and monopoly. One benefit of the free market is that it allows open competition among companies. Businesses must provide customers with high-quality products at fair prices with good service. If they don't, they lose customers to businesses that do. Select the degree of competition that best describes each listed industry or business based on the description.arrow_forwardConsider the local music scene in your area. Name some of the local live bands that play in clubs and music halls, both on and off-campus. Look in your local newspaper for advertisements for upcoming shows or performances. How would you characterize the market for local musicians? Is there product differentiation? In what specific ways do firms (individual performers or bands) compete? To what degree are they able to exercise market power? Are there barriers to entry? How profitable do you think the musicians are?arrow_forwardName-Brand Prescription Drugs Market—“Happy Pill”—that greatly improves life but is not essential to life. Using supply and demand analysis, explain what happens to the market price and quantity of a name-brand prescription drug Happy Pill if its patent expires. Using supply and demand analysis explain why Happy Pill might be advertised. Using supply and demand analysis, explain what would happen to the price and quantity of Happy Pills if there was a severe recession, and people lost their jobs, which included a health-care benefit that payed for prescription drugs.arrow_forward
- Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would (DECREASE OR INCREASE) and total cost would(DECREASE OR INCREASE) . Therefore, a monopolist will (SOMETIMES, ALWAYS, NEVER) produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).arrow_forwardBased on the demand curve you showed in question 2 above, what is the minimum and maximum price you can charge for your product? This does not mean that you will, in fact, charge the minimum or maximum price. It simply gives you an idea of the range of prices your demand curve allows you to charge. What are the quantities corresponding to the minimum and maximum price? Please show your work and explain how you calculated these prices and quantities. The demand curve I showed in question 2: P-16-4Qarrow_forwardDescribe how drug cartels are able to recruit new members when their members are murdered.arrow_forward
- Monopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, quantity would fall by a (LARGER AND SMALLER) percentage than the rise in price, causing profit to (DECREASE OR INCREASE) . Therefore, a monopolist will (ALWAYS, NEVER OR SOMETIMES) produce a quantity at which the demand curve is elastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).arrow_forwardImagine a small town in a remote area where only two residents, Maria and Miguel, own dairies that produce milk that is safe to drink. Each week Maria and Miguel work together to decide how many gallons of milk to produce. They bring milk to town and sell it at whatever price the market will bear. To keep things simple, suppose that Maria and Miguel can produce as much milk as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for milk is shown in the table below: Quantity (in gallons) 10 |1 O b. $12 O c. $10 d. S8 2 113 14 לן 16 17 18 19 10 11 12 Price $24 $22 $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Total Revenue (and Total Profit) $0 $22 $40 $54 $64 $70 $72 $70 $64 $54 $40 $22 $0 Refer to Table 17-3. Suppose the town enacts new antitrust laws that prohibit Maria and Miguel from operating as a monopoly. What will be the price of milk once Maria and Miguel reach a Nash equilibrium? a. $14arrow_forwardThe United States, France, and Italy are among the world's largest producers. To answer the following questions, assume that their markets are monopolistically competitive, and use the gravity equation with B =93 and n =1.25. GDP in 2005 ($bn) Distance from the United States (miles) 1,830 1,668 12,409 France 5,544 6,229 Italy United States a. Using the gravity equation, compare the expected level of trade between the United States and France and between the United States and Italy. b. The distance between Paris and Rome is 694 miles. Would you expect more French trade with Italy or with the United States? Explain what variable (i.e. country size or distance) drives your result.arrow_forward
- Use the graph to the right for a monopoly to answer the questions. What quantity will the monopoly produce, and what price will the monopoly charge? The monopoly will produce 84 units and charge $ 3.4 per unit. (Enter numeric responses using real numbers rounded to two decimal places.) Suppose the government decides to regulate this monopoly and imposes a price ceiling of $2.60 (in other words, the monopoly can charge less than $2.60 but can't charge more). Now what quantity will the monopoly produce, and what price will the monopoly charge? The monopoly will produce units and charge $ unit. per ...) cost per unit Price and 4.80- 4.40- 4.00- 3.60- 3.20- 2.80 2.40- 2.00- 1.60- 1.20- 0.80 0.40+ 0- 0 MC 16 32 48 60 72 84 96 108 120 132 14. Quantityarrow_forwardQ1 In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services. Monopoly is one of the market structures in Malaysia. It is characterized by the ability of one seller to gain high profits. In a place where a monopoly operates, it is hard for other firms to start. An example of monopolies Malaysia GLCS are Telekom Malaysia, TNB and etc. (In some cases, these firms are "nationalized," and the government actually buys or confiscates firms that operate in monopoly markets). (a) Explain TWO (2) advantages and disadvantages of such an approach above to ensure that the "best interest of society" is promoted in these monopoly markets. (b) Economists however would prefer a private ownership of monopoly rather than a public ownership of monopoly.arrow_forwardThe three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.arrow_forward
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