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Economics Homework Nine - Model (view source)
Revision as of 04:04, November 18, 2009
, 04:04, November 18, 2009almost done
1. Identify an industry not mentioned in the lecture that is an oligopoly, and explain why.
1. Identify an industry not mentioned in the lecture that is an oligopoly, and explain why.
:Video game companies like Nintendo, Sony and X-box (don't know who makes X-box) is an example of an oligopoly, because there is few competitors. It takes a lot of time effort and money to make a new company with its own system and games. And most of the systems are very similar. (Seth)
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).
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).
:1) Perfect Competition (MC=MR at a lower point P, where P=ATC)
:2) Perfectly Contestable Markets
:3) Monopolistic Competition
:4) Oligopoly
:5) Cartel
:6) Monopoly (MC=MR is how the price is determined) (Deborah)
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."
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) Perfect Competition 3) Monopoly (Zachary)
4. List how monopolies can be established.
4. List how monopolies can be established.
:1. Government creates monopolies by operation of law.
:2. The licensing of professionals creates a barrier to entry.
:3. Control of a valuable resource.
:4. Economies of scale can create a monopoly by rewarding the biggest company with the lowest average cost.
:5. Government grants of monopoly such as patents and copyrights. (Anna)
5. What prevents a monopoly from increasing its prices without limitation?
5. What prevents a monopoly from increasing its prices without limitation?
:A monopoly cannot simply increase its prices without limitation because, like any other firm, it is still subject to the Law of Demand no matter how powerful it becomes. (Trisha)
== Honors ==
== Honors ==
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After answering question 6, then answer two of these three questions:
After answering question 6, then answer two of these three questions:
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7. Monopolies: should the government regulate them? Or is regulation worse?
7. Monopolies: should the government regulate them? Or is regulation worse?
:As the Coase theorem illustrates, when government barges into the free market, complications and more transaction costs are the result. The government should let the invisible hand take care of it and not interfere. Great ruckus would occur if the government attempted to end a monopoly. It would cause industries to become bankrupt because the more competition the more difficult it is to survive. (Veronika)
8. Does the "deadweight loss" equal the "consumer surplus"? Explain the relationship.
8. Does the "deadweight loss" equal the "consumer surplus"? Explain the relationship.
:The question states “does the deadweight loss equal the consumer surplus?” No, it doesn’t: deadweight loss reduces but may not entirely eliminate consumer surplus. However, the deadweight loss is almost the exact opposite of the consumer surplus. With the deadweight loss, consumers may be forced to spend more than they would like to on something, because the monopoly is the only provider of it. With the consumer surplus, the consumer gets to pay less than he is willing. (Addison) [Teacher's note: the deadweight loss also eliminates part of the producer surplus]
9. How does a monopolist maximize his profits?
9. How does a monopolist maximize his profits?
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