Question 1: A firm in a perfectly competitive market invents a new technique of production which lowers its marginal costs. What happens to its output? What happens to the price it charges?
a) The firm has an employee who threatens to tell all other firms in the industry regarding how to implement this new technique. Will it be possible to bribe the employee not to do this? Describe why or why not.
b) Why should this employee probably select to tell only some of the other firms instead of all of them?
c) What factor will find out the best number of firms to sell the secret to? (Suppose that those who get the information keep the secret rather than selling it to still others.)
Question 2: [Requires calculus] A perfectly competitive firm faces a market price of $10 for its output X. It owns two plants A and B, whose total costs are:
TCa = 10+2x + .25X2
TCb = 15 +.4X + .1X2
Question 3: If marginal cost is constant and marginal revenue can slope upward, the firm will never operate at an output where marginal revenue cuts marginal cost from below. Describe why?
Question 4: A monopolist has two kinds of customers. There are 100 of Type A, who will each pay up to $10 for a single unit of the good and 50 of Type B, who will each pay up to $8. Neither is willing to purchase additional units at any price. If it must charge a uniform price, find out the price.
a) Suppose that spending $80 on advertising will attract 100 more Type B customers. Should the monopolist advertise? If so, what will happen to price?
Question 5: Like supermarkets, full-service department stores like Macy’s are usually in decline. What factors might such kinds of stores have in common behind their declines? How would you find out which were important and which were not?
Question 6: What are the highest and lowest payments from the writer that the beekeeper farmer team will accept for the sixth day? Supposing that the farmer can dispose of $7 from the writer as she wishes, what range of payments will the beekeeper accept? Supposing that the beekeeper gets that amount, what range of payments will the farmer accept? (Keep in mind that negative payments are as well possible.) Answer the same questions for the fifth day.
Some fields have big enough quantities of both oil and natural gas that coordination should be achieved for production of both, instead of oil alone as in our examples. Will fields with both oil and gas have greater difficulties in unitization than fields with oil or gas alone? Describe.
Question 7: Why might a parent company such as McDonalds or Hilton choose to franchise its local outlets instead of own them and staff them with employees? In many smaller cities all McDonald’s outlets are owned by the same franchisee. Why is (or isn’t) this fact consistent with our discussion of specific investments?
Every so often, a disgruntled college graduate sues her school on grounds that her tuition payments didn’t land her the good job she was expecting when she started there. Courts invariably throw out cases like hers. They are, though, willing to entertain suits against trade schools (those that teach skills like welding and computer repair) by graduates who make the same claims about inability to qualify for jobs which use the skills they learned in them. Why the difference?
Question 8: Even before the metals and manufacturing companies explained earlier, U.S. Railroads in the nineteenth century were M-form organizations based on geography. Why might a large railroad be better organized as M-form than U-form?
Your university is probably an M-form organization. Its president administers schools, for illustration, a college of business and college of liberal arts. The college of business each of these in turn has a dean who is responsible for faculty departments like economics and finance. Why is an M-form more likely than a U-form to be a proficient way of organizing a university and to organize the schools within it?
Question 9: Your University is probably an M-form organization. Its president administers schools, for illustration, a college of business and college of liberal arts. The college of business each of these in turn has a dean who is responsible for faculty departments like economics and finance. Why is an M-form more likely than a U-form to be a proficient way of organizing a university and to organize the schools within it?
Why might you expect to see flat royalty payments in home-based franchises however revenue-based royalties in franchisees that operate from commercial buildings?
a) Is your description consistent with the fact that franchised tutoring services frequently charge a fixed royalty per student enrolled?
A small-volume foreign auto marker limits the number of its franchised dealers in the United States and gives them exclusive territories. There are as well non-dealers who have no official connection with the manufacturer. They buy its cars overseas and sell them in the United States, a phenomenon sometimes termed as a ‘gray market’. If you are a manufacturer do you necessarily want the gray market to cease to exist? Why or why not? How about if you are a franchised dealer?
Question 10: How do you analysis of VMP change if the employer is a monopolist producer of its output however a price-taker in the labor market?
Most of the restaurant customers tip according to a percentage rule-between 15 and 25 percent of the bill. Diners who have dinner and a $20 bottle of wine generally pay the same percentage of the bottle price as diners who order a $100 bottle. Why, when the same efforts should be made to uncork and pour both bottles?
Question 11: Lenders perceive that you are risky, so you should pay 12 % annual interest to borrow from one of them. You only receive 6 % on funds you have deposited in the bank. Do the opportunity costs of borrowing and using your own funds differ in this illustration? Describe why or why not.
Devise a hypothetical business condition in which buying a look back call option on a commodity may be a sound strategy for you. How regarding a down-and-out call option?
Question 12: Is it possible that elementary education produces a public good however higher education does not? Describe.
We said that an uncrowded country club golf course has aspects of a public good. Why? Is it still a public good if it becomes crowded and people’s games are slowed down?