Economics

Vtwkd- fk -Cuo 4w-Jh** f,rqd, Are Lir-UU^^ CHAPTER 8 Market structure: Monopoly andM"""r"I,'..Hs#

2.

Technical Questions

1. Given the demand curv-e in the fbllowing graph, find (and label) the monopolist's profit-maximizing output and Price'

5.

Show graphiczrlly an exanlple of a monopolist that is producing the profit-maximizing output, but is rcot making a profit. Suppose the demand culve for a monopolist is Qo : 500 - P, and the marginal revenue function is MR : 500 - 2Q. The monopolist has a constant marginal and average total cost of $50 per unit.

a. Find the monopolist's profit-maximizing output and price.

b. Calculate the monopolist's profit. c. What is the Lerner Index for this industry?

Demonstrate graphically why persuasive adver- tising, which makes consumers rnore loyai to the advertised brand, is likely to incre:rse a fintr's mar- ket power (its ability to raise price above marginal cost). Will it necessarily increase profit as well? 'Ihe top four firms in IndustryAhave mzrket shares of 30, 25, 10, and 5 percent, respectively' The top four firms in Industry B have market shares of 15, 12, B, and 4 percent, respectively. C-lalculate the four-firm concentration ratios for the two indus- tries. Which industry is more concentrated?

1. Drawing on current business publications, discuss what has happened to Eastman Kodak Co. since the time this case was written. Has the company been able to develop strategies to regain market power?

",,'tSt

6. In both Industry C and Industry D, there are only four firms. Each of the four firms in Industry C has a 25 percent rnarket share. The four firms in Industry B have market shares of 80, 10, 5, and 5 percent, respectivelY.

a. Calculate the three- and four-firm concentra- tion ratios for each industrY.

b. Calculate the Herfindahl-Hirschman Index for each industry.

c. Are these industries equally concentrated? E4lain your answer'

7. The following graph shows a firm in a monopolis- tically competitive industry.

a. Show the firm's short-run profit-maximizing quantity and price. Is the firm making a profit?

b. Carefully explain what will happen in the industry over time, and draw a graph of a monopolisticaliy competitive firm in long-run equilibriurn.

Because products arc typicaliy differentiated in some way, there tends to be significant advertising in monopolistically competitive industriers. How will aclvertising affect a typical firm in a monop- olistically competitive industry? Explain, using a graph to support your answer.

'.,'.'o:i.:'l

2. The following discussion describcs changes in the greeting card industry.7S

Arnerican Greetings Corp., which originated in the early 1900s, has been stmggling in thc face of a multiyear declinc in industry-wide greeting-card

4.

;sMatt.larzenrsk1., ,,Fe,1'er Cards Ctoriltl Danrp Firrn's Cheer," ll]rll. Street. Jourtm.t. (Ottli,tt.rt), December 19, 2011

Economics far Managers, Third Edition, by Paul G. Famham. Published by Prentice Hall. Copyright @ 2014 by Pearson Education, lnc'

uestlons