You are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market. b. Suppose that any two of these firms merge. What is the post merger HHI? c. Based only on the information contained in this question and on the Horizontal Merger Guidelines described in this chapter, do you think the Justice Department (or FTC) would attempt to block a merger between any two of the firms? Explain.
> You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms’ products are viewed as identical by most consumers. The relevant cost functions are C (Qi) = 4Qi, and the inverse market demand curve for this uni
> The market for a standard-sized cardboard container consists of two firms: Composite Box and Fiberboard. As the manager of Composite Box, you enjoy a patented technology that permits your company to produce boxes faster and at a lower cost than Fiberboar
> You are the manager of a firm that competes against four other firms by bidding for government contracts. While you believe your product is better than the competition’s, the government purchasing agent views the products as identical and purchases from
> Semi-Salt Industries began its operation in 1975 and remains the only firm in the world that produces and sells commercial-grade polyglutamate. While virtually anyone with a degree in college chemistry could replicate the firm’s formula, due to the relat
> The opening statement on the website of the Organization of Petroleum Exporting Countries (OPEC) says its members seek “. . . to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on
> You are the manager of the only firm worldwide that specializes in exporting fish products to Japan. Your firm competes against a handful of Japanese firms that enjoy a significant first-mover advantage. Recently, one of your Japanese customers has calle
> The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from each other and can observe the prices posted on each other’s mar
> You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to businesses. From the two businesses’ perspectives, the two products are indistinguishable. The large investment required to bui
> Suppose that the U.S. Congress passes legislation that imposes a one-time lump-sum tariff on the product that a foreign firm exports to the United States. a. What happens to the foreign firm’s marginal cost curve as a result of the lump-sum tariff? b. Wi
> Ford executives announced that the company would extend its most dramatic consumer incentive program in the company’s long history—the Ford Drive America Program. The program provides consumers with either cash back or zero percent financing for new Ford
> Suppose a single firm produces all of the output in a contestable market. Analysts determine that the market inverse demand function is P = 150 − 2Q, and the firm’s cost function is C (Q) = 4Q. Determine the firm’s equilibrium price and corresponding pro
> Determine whether each of the following scenarios best reflects features of Sweezy, Cournot, Stackelberg, or Bertrand duopoly: a. Neither manager expects her own output decision to impact the other manager’s output decision. b. Each manager charges a pri
> Consider a homogeneous-product duopoly where each firm initially produces at a constant marginal cost of $200 and there are no fixed costs. Determine what would happen to each firm’s equilibrium output and profits if firm 2’s marginal cost increased to $
> Two firms compete in a market to sell a homogeneous product with inverse demand function P = 600 − 3Q. Each firm produces at a constant marginal cost of $300 and has no fixed costs. Use this information to compare the output levels and profits in setting
> You are the manager of a monopolistically competitive firm, and your demand and cost functions are estimated as Q = 36 − 4P and C(Q) = 4 + 4Q + Q2. (LO1, LO3, LO5) a. Find the inverse demand function for your firm’s product. b. Determine the profit-maxim
> The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. a. Determine the profit-maximizing output and price. b. What price and output would prevail if this firm’s product were sold by price-taking
> You are the manager of a firm that produces a product according to the cost function C(qi) = 160 + 58qi − 6qi 2 + qi 3. Determine the short-run supply function if: a. You operate a perfectly competitive business. b. You operate a monopoly. c. You operate
> You are the manager of a monopoly, and your analysts have estimated your demand and costs functions as P = 300 − 3Q and C(Q) = 1,500 + 2Q2, respectively. a. What price–quantity combination maximizes your firm’s profits? b. Calculate the maximum profits.
> The following graph summarizes the demand and costs for a firm that operates in a monopolistically competitive market. a. What is the firm’s optimal output? b. What is the firm’s optimal price? c. What are the firm&aci
> Consider a competitive market served by many domestic and foreign firms. The domestic demand for these firms’ product is Qd = 600 − 2P. The supply function of the domestic firms is QSD = 200 + P, while that of the foreign firms is QSF = 250. a. Determine
> A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q2. (LO3) a. How much output should the firm produce in the short run? b. What price sh
> The following graph summarizes the demand and costs for a firm that operates in a perfectly competitive market. a. What level of output should this firm produce in the short run? b. What price should this firm charge in the short run? c. What is the firm
> Last month you assumed the position of manager for a large car dealership. The distinguishing feature of this dealership is its “no hassle” pricing strategy; prices (usually well below the sticker price) are posted on the windows, and your sales staff ha
> The owner of an Italian restaurant has just been notified by her landlord that the monthly lease on the building in which the restaurant operates will increase by 20 percent at the beginning of the year. Her current prices are competitive with nearby res
> The French government announced plans to convert state-owned power firms EDF and GDF into separate limited companies that operate in geographically distinct markets. BBC News reported that France’s CFT union responded by organizing a mass strike, which t
> Recently, the spot market price of U.S. hot rolled steel plummeted to $400 per ton. Just one year ago, this same ton of steel cost $700. According to Metals Monitor, the drop in price was due to falling oil prices, along with a rise in cheap imports and
> In a statement to P&G shareholders, the CEO of Gillette (which is owned by P&G) indicated, “Despite several new product launches, Gillette’s advertising-to-sales declined dramatically . . . to 7.5 percent last year. Gillette’s advertising spending, in fa
> You are a manager at Spacely Sprockets—a small firm that manufactures Type A and Type B bolts. The accounting and marketing departments have provided you with the following information about the per-unit costs and demand for Type A bolt
> You are the general manager of a firm that manufactures personal computers. Due to a soft economy, demand for PCs has dropped 50 percent from the previous year. The sales manager of your company has identified only one potential client, who has received
> You are the manager of College Computers, a manufacturer of customized computers that meet the specifications required by the local university. More than 90 percent of your clientele consists of college students. College Computers is not the only firm th
> Evaluate this statement: “If the United States imposed a uniform excise tariff on all foreign imports, all U.S. businesses and workers would benefit. Consequently, if a bill to impose a uniform excise tariff were introduced in the U.S. Congress, it would
> The second-largest public utility in the nation is the sole provider of electricity in 32 counties of southern Florida. To meet the monthly demand for electricity in these counties, which is represented by the estimated inverse demand function P = 1,200
> You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($150 million last year) and a low marginal cost of producing the product ($0.50 per pill), your company has yet to show a pr
> When the first Pizza Hut opened its doors back in 1958, it offered consumers one style of pizza: its Original Thin Crust Pizza. Since its modest beginnings, Pizza Hut has established itself as the leader of the $25 billion pizza industry. Today, Pizza Hu
> You are the manager of a small U.S. firm that sells nails in a competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundreds of other firms). You are concerned about two eve
> The CEO of a major automaker overheard one of its division managers make the following statement regarding the firm’s production plans: “In order to maximize profits, it is essential that we operate at the minimum point of our average total cost curve.”
> There are two workers. Each worker’s demand for a public good is P = 20 − Q. The marginal cost of providing the public good is $24. The accompanying graph summarizes the relevant information. a. What is the socially ef
> You are an industry analyst who specializes in an industry where the market inverse demand is P = 200 − 4Q. The external marginal cost of producing the product is MC External = 6Q, and the internal cost is MC Internal = 12Q. (LO1) a. What is the socially
> Suppose that, prior to the passage of the Truth in Lending Simplification Act and Regulation Z, the demand for consumer loans was given by Q pre-TILSA d = 12 − 100P (in billions of dollars) and the supply of consumer loans by credit unions and other lend
> Enrodes is a monopoly provider of residential electricity in a region of northern Michigan. Total demand by its 3 million households is Qd = 1,500 − 2P, and Enrodes can produce electricity at a constant marginal cost of $4 per megawatt-hour. Consumers in
> The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to –4. The firm’s marginal cost is constant at $25 per unit. a. Express the firm’s marginal revenue as a function of its price. b. Determine the
> Section 16(a) of the Securities and Exchange Act of 1934, as amended in 1990, requires that the officers, directors, and principal shareholders of companies disclose the extent of their ownership of equity securities of the company and any changes in the
> You are the manager of a paper mill and have been subpoenaed to appear before a joint session of the Senate Consumer Affairs and the Senate Environmental subcommittees. The Consumer Affairs Subcommittee is interested in your testimony about the pricing p
> A well-known conglomerate that manufactures a multitude of noncompeting consumer products instituted a corporate wide initiative to encourage the managers of its many divisions to share consumer demographic information. However, since the initiative was
> Is “fairness” the economic basis for government laws and regulations designed to remedy market failures? If so, why; if not, what is the economic basis?
> Explain, using precise economic terminology, the economic rationale for laws against insider trading.
> The accompanying diagram depicts a monopolist whose price is regulated at $10 per unit. Use this figure to answer the questions that follow. a. What price will an unregulated monopoly charge? b. What quantity will an unregulated monopoly produce? c. How
> As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 40 − 2Q, and your costs are C (Q) = 8Q. a. Determine the monopoly price and output. b. Determine the socially efficient price and output. c. What is the ma
> Use the accompanying graph to answer the questions that follow. a. Suppose this monopolist is unregulated. (1) What price will the firm charge to maximize its profits? (2) What is the level of consumer surplus at this price? b. Suppose the firmâ
> The Federal Trade Commission (FTC) issued a complaint against Nestlé and Ralston Purina alleging that a proposed merger between the two companies would violate, among other things, section 7 of the Clayton Act. While these two companies sell many product
> A monopolist’s inverse demand function is estimated as P = 150 − 3Q. The company produces output at two facilities; the marginal cost of producing at facility 1 is MC1(Q1) = 6Q1, and the marginal cost of producing at facility 2 is MC2(Q2) = 2Q2. a. Provi
> Moses Inc. is a small electric company that provides power to customers in a small rural area in the Southwest. The company is currently maximizing its profits by selling electricity to consumers at a price of $0.15 per kilowatt-hour. Its marginal cost i
> Social Dynamo Corporation earned profits last year of $49 million on sales of $500 million. During the same period, its major competitor—EIO Corp.—enjoyed sales of $490 million and earned profits of $52 million. Currently, Social Dynamo is negotiating a
> Between 1972 and 1981, Texaco sold gasoline to independent Texaco retailers at “retail tank wagon prices” but granted substantial discounts to distributors Gull and Dompier. Gull resold the gas under its own name. Dompier resold the gas under the Texaco
> The fighters of the Ultimate Fighting Championship (UFC) filed suit against the UFC, alleging that the UFC unlawfully monopolized the output and input markets in mixed martial arts. In particular, the fighters claimed that UFC used long-term exclusive co
> On November 18, 2012, Nintendo released its eighth-generation video game console, the Wii U. In November 2013, Microsoft and Sony followed suit by releasing the Xbox One and PlayStation 4, respectively. Although these three video game consoles have domin
> A firm is considering building a two-way network that links 12 users. The cost of building the network is $10,000. a. How many potential connection services does this network provide? b. If each user is willing to pay $150 to connect to the network, will
> Bank 1 and Bank 2 are considering entering a compatibility agreement that would permit the users of each bank’s automated teller machines (ATMs) access to the other bank’s ATMs. Bank 1 has a network of branches and ATMs extending from Connecticut to Flor
> During the dot-com era, mergers among some brokerage houses resulted in the acquiring firm paying a premium on the order of $100 for each of the acquired firm’s customers. Is there a business rationale for such a strategy? Do you think these circumstance
> During the early days of the Internet, most dot-coms were driven by revenues rather than profits. A large number were even driven by “hits” to their site rather than revenues. This all changed in early 2000, however, when the prices of unprofitable dot-c
> Consider the following simultaneous move game: 1In working this problem, note that the positive integers consist of the numbers {1, 2, 3, 4, . . .}, and “infinity” is not an integer. a. What is the maximum amount playe
> The elasticity of demand for a firm’s product is –4 and its advertising elasticity of demand is 0.32. a. Determine the firm’s optimal advertising-to-sales ratio. b. If the firm’s revenues are $30,000, what is its profit-maximizing level of advertising?
> Tom Jackson has been running a successful steakhouse that specializes in serving upscale steak dinners. His current marketing campaign targets residential households. Recently, it was announced that a new conference hotel was to open near his steakhouse,
> You are the manager of 3D Designs—a large imaging company that does graphics and web design work for companies. You and your only competitor are contemplating the purchase of a new 3-D imaging device. If only one of you acquires the device, that firm wil
> In the following game, determine the maximum amount you would be willing to pay for the privilege of moving (a) first, (b) second, or (c) third: There are three players, you and two rivals. The player announcing the largest integer gets a payoff of $10,
> The market for taxi services in a Midwestern town is monopolized by firm 1. Currently, any taxi services firm must purchase a $40,000 “medallion” from the city in order to offer its services. A potential entrant (firm
> Two firms compete in a Cournot fashion. Firm 1 successfully engages in an activity that raises its rival’s marginal cost of production. a. Provide two examples of activities that might raise rivals’ marginal costs. b. In order for such strategies to be b
> Discuss how price discrimination can enhance the effectiveness of predatory pricing and strategies that raise rivals’ costs.
> Evaluate the following: “Since a rival’s profit-maximizing price and output depend on its marginal cost and not its fixed costs, a firm cannot profitably lessen competition by implementing a strategy that raises its rival’s fixed costs.”
> The CEO of a regional airline recently learned that its only competitor is suffering from a significant cash-flow constraint. The CEO realizes that its competitor’s days are numbered but has asked whether you would recommend the carrier significantly low
> In 2015 Qualcomm Inc., an American multinational semiconductor company, came under scrutiny for its business practices by the United States and the European Union. It was argued that Qualcomm was paying a major customer to exclusively use its chips. In a
> Argyle is a large, vertically integrated firm that manufactures sweaters from a rare type of wool produced on its sheep farms. Argyle has adopted a strategy of selling wool to companies that compete against it in the market for sweaters. Explain why this
> As a newly hired manager at your firm, you decide to start your tenure by assessing the sensibility of your current advertising expenditure. To do this, you ask your analytics team to collect useful data on the quantity of your product sold, the price, a
> A number of professional associations, such as the American Medical Association and the American Bar Association, support regulations that make it more costly for their members (e.g., doctors and lawyers) to practice their services. While some of these r
> Between 1995 and 1997, American Airlines competed in the Dallas/Ft. Worth Airport against several other low-cost carriers. In response to these low-cost carriers, American Airlines reduced its price and increased service on selected routes. As a result,
> You are the manager of an international firm headquartered in Antarctica. You are contemplating a business tactic that will permit your firm to raise prices and increase profits in the long run by eliminating one of your competitors. Do you think it woul
> Two firms compete in a homogeneous product market where the inverse demand function is P = 20 − 5Q (quantity is measured in millions). Firm 1 has been in business for one year, while firm 2 just recently entered the market. Each firm has a legal obligati
> Suppose that, prior to other firms entering the market, the maker of a new smart phone (Way Cool Inc.) earns $80 million per year. By reducing its price by 60 percent, Way Cool could discourage entry into “its” market, but doing so would cause its profit
> A monopolist earns $30 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $30 million in the current period and $15 mil
> A potential entrant can produce at the same cost as the monopolist illustrated in the accompanying figure. The monopolist’s demand curve is given by DM, and its average cost curve is AC. a. What level of output does the monopolist have
> Discuss how price discrimination can enhance the effectiveness of a limit pricing strategy.
> Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the p
> Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $110,000. When this same manager is given an annual, fixed salary of $110,000 and 6 percen
> As a manager in a monopolistically competitive industry, you are trying to determine the optimal price for your product. You’ve asked the analysts in your firm to determine as closely as possible the inverse demand curve for your produc
> Canada’s forestry industry (composed mainly of those involved in the lumber industry) directly employs about 370,000 workers and indirectly employs an additional 510,000 people in support services. Forestry products account for nearly 3 percent of Canada
> Identify the type of specialized investment that each of the following situations requires. a. You hire an employee to operate a machine that only your company uses. b. An aerosol canning company designs a filling line that can be used only for a particu
> Explain why automobile manufacturers produce their own engines but purchase mirrors from independent suppliers.
> Identify whether each of the following transactions involves spot exchange, contract, or vertical integration. a. Barnacle Inc. has a legal obligation to purchase 2 tons of structural steel per week to manufacture conveyor frames. b. ExxonMobil uses the
> Discuss the optimal method for procuring a modest number of standardized inputs that are sold by many firms in the marketplace. What are the primary advantages and disadvantages of using this method to acquire inputs? Give an example not used in the text
> Discuss the optimal method for procuring inputs that have well-defined and measurable quality specifications and require highly specialized investments. What are the primary advantages and disadvantages of acquiring inputs through this means? Give an exa
> Recently, the owner of a Trader Joe’s franchise decided to change how she compensated her top manager. Last year, she paid him a fixed salary of $65,000, and her store made $120,000 in profits (not counting payment to her top manager). She suspected the
> Jim’s diner is just about to open in Memphis, Tennessee. However, Jim is trying to decide whether he wants to offer Coke or Pepsi soda products. He determines that, to offer either product, he will have to spend $1,800 in sunk costs to purchase and insta
> HomeGrown is a small restaurant that specializes in serving local fruits, vegetables, and meats. The company has chosen to enter into a long-term relationship with Family Farms, a local farming operation. The two parties have decided to enter into a long
> Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since its product required the least amount of specialized investments
> Automated Data Processing (ADP) provides computer software and services to a host of companies, including automobile dealerships. ADP charges dealerships a monthly lease for hardware, software, and support services but does not charge for training the de
> As a manager in a new product market, you are interested in whether or not your competitors actually produce a close substitute for your product. Your analytics team has carefully collected data on prices and quantities for your product, as well as marke
> You are a management consultant for a 30-year-old partner in a large law firm. In a meeting, your client says: “According to an article in The New York Times, 57 percent of large law firms have a mandatory retirement age for partners in the firm. Before
> Business-process outsourcing (BPO) is a type of outsourcing that consists of contracting operations and responsibilities of a specific business process (e.g., human resources) to a third-party service provider. Such outsourcing generally began with manuf
> A few years ago, the Boston Globe reported that the city of Boston planned to spend $14 million to convert the Fleet Center sports arena and entertainment center into an appropriate venue for the Democratic National Convention (DNC). The city engaged Sha
> Recently, Air Liquide signed a long-term contract with Yan’an Energy and Chemical Co., a subsidiary of Yanchang Petroleum Group—one of China’s largest firms engaged in oil and natural gas exploration and production as well as oil refining. The new contra
