Question: Why does price leadership sometimes evolve in

> Compute trend percents for the following accounts, using 2011 as the base year (round the percents to whole numbers). State whether the situation as revealed by the trends appears to be favorable or unfavorable for each account. 2015 2014 2013 2012

> Nintendo Company, Ltd., reports the following financial information as of, or for the year ended, March 31, 2011. Nintendo reports its financial statements in both Japanese yen and U.S. dollars as shown (amounts in millions). Current assets . . . . . .

> Use KTM’s financial statements in Appendix A to compute its return on total assets for fiscal yearended December 31, 2011.

> Refer to Piaggio’s financial statements in Appendix A. Compute its debt ratio as of December 31, 2011, and December 31, 2010.

> Refer to Arctic Cat’s financial statements in Appendix A to compute its equity ratio as of March 31, 2011, and March 31, 2010.

> Key comparative information for Piaggio (www.piaggio.com), which manufactures two-,three- and four-wheel vehicles, and is Europe’s leading manufacturer of motorcycles and scooters, follows. Required1. Compute the recent two years&acir

> Refer to Polaris’s financial statements in Appendix A to answer the following. 1. Is Polaris’s statement of cash flows prepared under the direct method or the indirect method? How do you know? 2. For each year 2011, 2010, and 2009, is the amount of cash

> Currently the National Football League has a system for drafting college players by which each player is picked by only one team. The player must sign with that team or not play in the league. What would happen to the wages of both newly drafted and more

> For a monopsonist, what is the relationship between the supply of an input and the marginal expenditure on it?

> Suppose there are two groups of workers, unionized and nonunionized. Congress passes a law that requires all workers to join the union. What do you expect to happen to the wage rates of formerly nonunionized workers? Of those workers who were originally

> The demands for the factors of production listed below have increased. What can you conclude about changes in the demands for the related consumer goods? If demands for the consumer goods remain unchanged, what other explanation is there for an increase

> Using your knowledge of marginal revenue product, explain the following: a. A famous tennis star is paid $200,000 for appearing in a 30-second television commercial. The actor who plays his doubles partner is paid $500. b. The president of an ailing sav

> Assume that workers whose incomes are less than $10,000 currently pay no federal income taxes. Suppose a new government program guarantees each worker $5000, whether or not he or she earns any income. For all earned income up to $10,000, the worker must

> Suppose that the wage rate is $16 per hour and the price of the product is $2. Values for output and labor are in units per hour. q………………………………………………….L 0………………………………………………….0 20………………………………………………….1 35………………………………………………….2 47………………………………………………….3 57…………

> A firm uses a single input, labor, to produce output q according to the production function q= 8 L . The commodity sells for $150 per unit and the wage rate is $75 per hour. a. Find the profit-maximizing quantity of L. b. Find the profit-maximizing quan

> Using the same information as in Exercise 8, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? Ho

> The demand for labor by an industry is given by the curve L = 1200 ! 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the econo

> Sal’s satellite company broadcasts TV to subscribers in Los Angeles and New York. The demand functions for each of these two groups are QNY = 60 – 0.25PNY QLA = 100 – 0.50PLA where Q is in thousands of subscriptions per year and P is the subscription p

> The only legal employer of military soldiers in the United States is the federal government. If the government uses its knowledge of its monopsonistic position, what criteria will it employ when determining how many soldiers to recruit? What happens if a

> Suppose a firm’s production function is given by Q = 12L ! L2, for L = 0 to 6, where L is labor input per day and Q is output per day. Derive and draw the firm’s demand for labor curve if the firm’s output sells for $10 in a competitive market. How many

> What is a dominant strategy? Why is an equilibrium stable in dominant strategies?

> What is a “tit-for-tat” strategy? Why is it a rational strategy for the infinitely repeated prisoners’ dilemma?

> How does a Nash equilibrium differ from a game’s maximin solution? When is a maximin solution a more likely outcome than a Nash equilibrium?

> Explain the meaning of a Nash equilibrium. How does it differ from an equilibrium in dominant strategies?

> What is the difference between a cooperative and a noncooperative game? Give an example of each.

> Why is the winner’s curse potentially a problem for a bidder in a common-value auction but not in a private-value auction?

> A strategic move limits one’s flexibility and yet gives one an advantage. Why? How might a strategic move give one an advantage in bargaining?

> Can the threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible?

> Many retail video stores offer two alternative plans for renting films: • A two-part tariff: Pay an annual membership fee (e.g., $40) and then pay a small fee for the daily rental of each film (e.g., $2 per film per day). • A straight rental fee: Pay n

> What is a “strategic move”? How can the development of a certain kind of reputation be a strategic move?

> What is meant by “first-mover advantage”? Give an example of a gaming situation with a first-mover advantage.

> Suppose you and your competitor are playing the pricing game shown in Table 13.8. Both of you must announce your prices at the same time. Can you improve your outcome by promising your competitor that you will announce a high price?

> Consider a game in which the prisoners’ dilemma is repeated 10 times and both players are rational and fully informed. Is a tit-for-tat strategy optimal in this case? Under what conditions would such a strategy be optimal?

> Two computer firms, A and B, are planning to market network systems for office information management. Each firm can develop either a fast, high-quality system (High), or a slower, low-quality system (Low). Market research indicates that the resulting pr

> Many industries are often plagued by overcapacity: Firms simultaneously invest in capacity expansion, so that total capacity far exceeds demand. This happens not only in industries in which demand is highly volatile and unpredictable, but also in industr

> In many oligopolistic industries, the same firms compete over a long period of time, setting prices and observing each other’s behavior repeatedly. Given the large number of repetitions, why don’t collusive outcomes typically result?

> Defendo has decided to introduce a revolutionary video game. As the first firm in the market, it will have a monopoly position for at least some time. In deciding what type of manufacturing plant to build, it has the choice of two technologies. Technolog

> You play the following bargaining game. Player A moves first and makes Player B an offer for the division of $100. (For example, Player A could suggest that she take $60 and Player B take $40). Player B can accept or reject the offer. If he rejects it, t

> You are a duopolist producer of a homogeneous good. Both you and your competitor have zero marginal costs. The market demand curve is P = 30 ! Q where Q = Q1 + Q2. Q1 is your output and Q2 your competitor’s output. Your competitor has also read this boo

> Elizabeth Airlines (EA) flies only one route: Chicago-Honolulu. The demand for each flight is Q = 500 – P. EA’s cost of running each flight is $30,000 plus $100 per passenger. a. What is the profit-maximizing price that EA will charge? How many people w

> We can think of U.S. and Japanese trade policies as a prisoners’ dilemma. The two countries are considering policies to open or close their import markets. The payoff matrix is shown below. a. Assume that each country knows the payoff m

> Two competing firms are each planning to introduce a new product. Each will decide whether to produce Product A, Product B, or Product C. They will make their choices at the same time. The resulting payoffs are shown below. a. Are there any Nash equilibr

> Two major networks are competing for viewer ratings in the 8:00!9:00 P.M. and 9:00!10:00 P.M. slots on a given weeknight. Each has two shows to fill this time period and is juggling its lineup. Each can choose to put its “biggerâ&

> Two firms are in the chocolate market. Each can choose to go for the high end of the market (high quality) or the low end (low quality). Resulting profits are given by the following payoff matrix: a. What outcomes, if any, are Nash equilibria? b. If the

> Why is the Cournot equilibrium stable? (i.e., Why don’t firms have any incentive to change their output levels once in equilibrium?) Even if they can’t collude, why don’t firms set their outputs at the joint profit-maximizing levels (i.e., the levels the

> Some experts have argued that too many brands of breakfast cereal are on the market. Give an argument to support this view. Give an argument against it.

> Why is the firm’s demand curve flatter than the total market demand curve in monopolistic competition? Suppose a monopolistically competitive firm is making a profit in the short run. What will happen to its demand curve in the long run?

> What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market if one firm introduces a new, improved product?

> Why has the OPEC oil cartel succeeded in raising prices substantially while the CIPEC copper cartel has not? What conditions are necessary for successful cartelization? What organizational problems must a cartel overcome?

> A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are: P 1 = 15 – Q1 MR 1 = 15 – 2Q1 P 2 = 25 – 2Q2 MR 2 = 25 – 4Q2 The monopo

> The kinked demand curve describes price rigidity. Explain how the model works. What are its limitations? Why does price rigidity occur in oligopolistic markets?

> Explain the meaning of a Nash equilibrium when firms are competing with respect to price. Why is the equilibrium stable? Why don’t the firms raise prices to the level that maximizes joint profits?

> What do the Cournot and Bertrand models have in common? What is different about the two models?

> In the Stackelberg model, the firm that sets output first has an advantage. Explain why.

> Two firms compete in selling identical widgets. They choose their output levels Q1 and Q2 simultaneously and face the demand curve P = 30 – Q where Q = Q1 + Q2. Until recently, both firms had zero marginal costs. Recent environmental regulations have in

> This exercise is a continuation of Exercise 3. We return to two firms with the same constant average and marginal cost, AC = MC = 5, facing the market demand curve Q1 + Q2 = 53 – P. Now we will use the Stackelberg model to analyze what will happen if one

> A monopolist can produce at a constant average (and marginal) cost of AC = MC = $5. It faces a market demand curve given by Q = 53 – P. a. Calculate the profit-maximizing price and quantity for this monopolist. Also calculate its profits. b. Suppose a s

> Consider two firms facing the demand curve P = 50 – 5Q, where Q = Q1 + Q2. The firms’ cost functions are C1(Q1) = 20 + 10Q1 and C2(Q2) = 10 + 12Q2. a. Suppose both firms have entered the industry. What is the joint profit-maximizing level of output? How

> Suppose all firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand? Explain.

> A lemon-growing cartel consists of four orchards. Their total cost functions are: TC is in hundreds of dollars, and Q is in cartons per month picked and shipped. a. Tabulate total, average, and marginal costs for each firm for output levels between 1 an

> Why might a firm have monopoly power even if it is not the only producer in the market?

> Suppose the market for tennis shoes has one dominant firm and five fringe firms. The market demand is Q = 400 – 2P. The dominant firm has a constant marginal cost of 20. The fringe firms each have a marginal cost of MC = 20 + 5q. a. Verify that the tota

> The dominant firm model can help us understand the behavior of some cartels. Let’s apply this model to the OPEC oil cartel. We will use isoelastic curves to describe world demand W and noncartel (competitive) supply S. Reasonable number

> Two firms compete by choosing price. Their demand functions are Q 1 = 20 – P1 + P2 and Q2 = 20 + P1 – P2 where P1 and P2 are the prices charged by each firm, respectively, and Q1 and Q2 are the resulting demands. Note that the demand for each g

> Two firms produce luxury sheepskin auto seat covers, Western Where (WW) and B.B.B. Sheep (BBBS). Each firm has a cost function given by C (q) = 30q + 1.5q2 The market demand for these seat covers is represented by the inverse demand equation P = 300 – 3

> Demand for light bulbs can be characterized by Q = 100 – P, where Q is in millions of boxes of lights sold and P is the price per box. There are two producers of lights, Everglow and Dimlit. They have identical cost functions: a. Unable

> Suppose the airline industry consisted of only two firms: American and Texas Air Corp. Let the two firms have identical cost functions, C(q) = 40q. Assume the demand curve for the industry is given by P = 100 – Q and that each firm expects the other to b

> Suppose that two competing firms, A and B, produce a homogeneous good. Both firms have a marginal cost of MC = $50. Describe what would happen to output and price in each of the following situations if the firms are at (i) Cournot equilibrium, (ii) collu

> Suppose that two identical firms produce widgets and that they are the only firms in the market. Their costs are given by C1 = 60Q1 and C2 = 60Q2, where Q1 is the output of Firm 1 and Q2 the output of Firm 2. Price is determined by the following demand c

> Ajax Computer makes a computer for climate control in office buildings. The company uses a microprocessor produced by its upstream division, along with other parts bought in outside competitive markets. The microprocessor is produced at a constant margin

> Review the numerical example about Race Car Motors. Calculate the profit earned by the upstream division, the downstream division, and the firm as a whole in each of the three cases examined: (a) there is no outside market for engines; (b) there is a c

> Why is there no market supply curve under conditions of monopoly?

> The House Products Division of Acme Corporation manufactures and sells digital clock radios. A major component is supplied by the electronics division of Acme. The cost functions for the radio and the electronic component divisions are, respectively, Not

> Reebok produces and sells running shoes. It faces a market demand schedule P = 11 – 1.5QS, where QS is the number of pairs of shoes sold and P is the price in dollars per pair of shoes. Production of each pair of shoes requires 1 square yard of leather.

> Give some examples of third-degree price discrimination. Can third-degree price discrimination be effective if the different groups of consumers have different levels of demand but the same price elasticities?

> Electric utilities often practice second-degree price discrimination. Why might this improve consumer welfare?

> How does a car salesperson practice price discrimination? How does the ability to discriminate correctly affect his or her earnings?

> Suppose a firm can practice perfect, first-degree price discrimination. What is the lowest price it will charge, and what will its total output be?

> How can a firm check that its advertising-to-sales ratio is not too high or too low? What information does it need?

> Why is it incorrect to advertise up to the point that the last dollar of advertising expenditures generates another dollar of sales? What is the correct rule for the marginal advertising dollar?

> How does tying differ from bundling? Why might a firm want to practice tying?

> How does mixed bundling differ from pure bundling? Under what conditions is mixed bundling preferable to pure bundling? Why do many restaurants practice mixed bundling (by offering a complete dinner as well as an à la carte menu) instead of pure bundling

> We write the percentage markup of prices over marginal cost as (P – MC)/P. For a profit maximizing monopolist, how does this markup depend on the elasticity of demand? Why can this markup be viewed as a measure of monopoly power?

> Why did MGM bundle Gone with the Wind and Getting Gertie’s Garter? What characteristic of demands is needed for bundling to increase profits?

> In the town of Woodland, California, there are many dentists but only one eye doctor. Are senior citizens more likely to be offered discount prices for dental exams or for eye exams? Why?

> Why is the pricing of a Gillette safety razor a form of two-part tariff? Must Gillette be a monopoly producer of its blades as well as its razors? Suppose you were advising Gillette on how to determine the two parts of the tariff. What procedure would yo

> How can a firm determine an optimal two-part tariff if it has two customers with different demand curves?

> How is peak-load pricing a form of price discrimination? Can it make consumers better off? Give an example.

> When pricing automobiles, American car companies typically charge a much higher percentage markup over cost for “luxury option” items (such as leather trim, etc.) than for the car itself or for more “basic” options such as power steering and automatic tr

> How do the antitrust laws limit market power in the United States? Give examples of major provisions of the laws.

> Show why optimal, third-degree price discrimination requires that marginal revenue for each group of consumers equals marginal cost. Use this condition to explain how a firm should change its prices and total output if the demand curve for one group of c

> Why is there a social cost to monopsony power? If the gains to buyers from monopsony power could be redistributed to sellers, would the social cost of monopsony power be eliminated? Explain briefly.

> What are some sources of monopsony power? What determines the amount of monopsony power an individual firm is likely to have?

> What is meant by the term “monopsony power”? Why might a firm have monopsony power even if it is not the only buyer in the market?

> How should a monopsonist decide how much of a product to buy? Will it buy more or less than a competitive buyer? Explain briefly.

> Why will a monopolist’s output increase if the government forces it to lower its price? If the government wants to set a price ceiling that maximizes the monopolist’s output, what price should it set?

> Why is there a social cost to monopoly power? If the gains to producers from monopoly power could be redistributed to consumers, would the social cost of monopoly power be eliminated? Explain briefly.

> What factors determine the amount of monopoly power an individual firm is likely to have? Explain each one briefly.

> What are some of the different types of barriers to entry that give rise to monopoly power? Give an example of each.

> A monopolist faces the following demand curve: Q = 144/P2 where Q is the quantity demanded and P is price. Its average variable cost is AVC = Q1/2 and its fixed cost is 5. a. What are its profit-maximizing price and quantity? What is the resulting pro