Competitive Market and Government Regulation

Managerial Economics 

Concepts: Competitive Market and Government Regulation

Part A: How does government regulation affect the entry or exit of firms into the competitive market?

There has been much discussion that government regulations hinder the entry of firms in to the competitive market. Discuss the pros and cons of government regulation.

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Part B: What makes a competitive market?

In the section entitled Low Barriers to Entry, this chapter lists six characteristics for a competitive market that can help an economy achieve the virtues of competition. The six characteristics are:

a) Many firms

b) Identical products

c) MC = p

d) Low barriers to entry

e) Zero economic profit

f) Perfect information

However, these characteristics don’t always occur. Pick a market for a good or service with which you are familiar (for example, college textbooks or car insurance—but don’t

use these examples). Be sure you select a good or service produced by firms operating to make a profit. Don’t pick something produced by the government or a non-profit firm.

1) In the market you selected, which characteristics are present?

2) Which characteristics are absent?

3) Pick one of the absent characteristics. Provide evidence to support your judgment that it is missing.

4) For one of the absent characteristics you identified in (2), describe a government policy to remedy the shortcoming, so that more of the virtues of competition could be achieved. Explain why production would be more efficient and why there would be a more optimal mix of output.

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Part C: How does tax policy affect business decisions?

This chapter discusses the effects that tax policy has on business decisions. How do these taxes affect business decisions regarding investment and/or production decisions?

a) Property taxes

b) Payroll taxes

c) Profit taxes

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Part D: Is Antitrust Lynchpin or folly?

Economists generally agree that US antitrust policy is complex, changing over time, divided among several US federal government agencies, and subject to frequent court reversals. The underlying question remains whether the US needs more or less regulation of market structures.

Key questions are:

· Are US markets becoming less competitive because of mergers and acquisitions?

· Are US markets becoming more competitive because of new technology?

· Are US markets becoming more or less competitive because of globalization?

· Is enough information available for wise antitrust enforcement?

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