Economics Homework Nine Answers - Student Eighteen

Michelle F- in progress

1. Identify an industry not mentioned in the lecture that is an oligopoly, and explain why.

Realtors like Remax, Century 21, and Weichert have an oligopoly on house sales in the north Jersey area. It’s extremely difficult to start your own real estate business, and there are only a few of them and they are all selling the same services.

Excellent.

2. Order the types of industries from those having the lowest price (due to the greatest competition) to those having the highest price (due to the least competition).

Perfect competition Perfectly contestable markets Monopolistic competition Oligopoly Cartel Monopoly

Superb.

3. Explain which specific type of industry (e.g., oligopoly or something else) each of these quotes probably refers to: (1) "She's the finest hair stylist in town; no one has her special style!” (2) "Crazy Eddie ... his low prices are INSANE!", (3) "Don't like his prices? He's the only one in town selling what you need."

(1) Monopolistic competition (2) Perfectly contestable markets (3) Monopoly

Correct, except I think (2) is perfect competition. Why else would Eddie be advertising so aggressively in that manner?

4. List how monopolies can be established.

On occasion the government establishes them. Usually there is either a (1) high barrier to entry, (2) control of valuable resources, or, (3) economies of scale. All of these circumstances can create monopolies by making it extremely hard for another company to enter the market.

Good, but could list some more specific examples, such as licensing professionals like doctors or lawyers. (Minus 1)

5. What prevents a monopoly from increasing its prices without limitation?

Free pass on a question.

Honors

6. Where is the Nash equilibrium for this set of options, where (x,y) represents the profits to (Firm A, Firm B)? Explain.

The Nash Equilibrium is where they both have reduced their output. Before they both reduced their output, they both could have increased their profit by reducing their output. But once they both have reduced their output there are no more options on the table.

Nope, but your analysis is good. See model answers when available. (Minus 1)

7. Monopolies: should the government regulate them? Or is regulation worse?

As important as the economy is, do we really want that in the hands of the government? I think the free market and the invisible hand is a much better choice. As for regulation, we have the law of demand.

Excellent! Could use as a model.

9. How does a monopolist maximize his profits?

The same way as any other supplier would. By producing goods/services

OK ... but incomplete. The answer is where MR=MC. (Minus 1).

67/70. Good work on difficult questions.--Andy Schlafly 23:58, 15 November 2009 (EST)