inated by Apple, but recently the Droid has been able to leverage Google's information services into market gains, while Blackberry, known for its secure business-oriented network, has attempted to become more attractive with a “friendlier” interface. At t
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- Assume there are two companies in the region, A and B. You currently work for Company B. Both companies service the entire market and have a combined market share of 100%. At the start of the period, A and B split the market evenly with 50% share each. However, A has adopted a new customer retention tool and has projected the following switching matrix. TO FROM A B A 0.8 0.2 B 0.3 0.7 Given this switching matrix. 1 - What is the projected Market Share for Company A next period? 2- Assume that each customer has a profitability of $30 each year. There are 10,000 customers in the market. How much profit per year, in the long run and assuming no other costs or changes to the market, can we assume that B will lose due to this new technology compared to their prior position?Royal Dutch Shell has been doing business in Nigeria since the 1920s, and has announced new plans to develop oil and gas projects there. However, over the years Shell has confronted a series of episodes involving country risk. Shell’s operations are centred in Nigeria’s Ogoni region, where the local citizens have protested Shell’s drilling and refining activities, which are said to spoil the natural environment and reduce the amount of available farmland. Protestors also accuse Shell of extracting wealth from the region without adequately compensating local residents. Ogonis sabotaged Shell’s operations to such an extent that the firm suspended parts of its Nigerian operations. Shell also came under pressure to divest its Nigerian operations and to pay reparations to the locals. What proactive steps can Shell take to anticipate future country risk? What should Shell do to deal more effectively with country risk?A student in a managerial economics class calculated the four-firm concentration ratio and HHI for industries A and B. What is the proper conclusion she can draw from the following findings? Industry A Industry B Four-Firm C 0.9 1 HHI 3,200 2,500 Multiple Choice C4 is higher for industry A while the HHI is higher for industry B. This inconsistency must be due to a calculation error. The market power of firms in industry A is greater than that in industry B. Neither industry is perfectly competitive. Industry B is a monopoly.
- Imagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. Are there any separating equilibria in this model? If so, find them, if not show why they do not exist.Imagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. A) Are there any pooling equilibria in this model? If so find all of them, if not, show why they do not exist.1) Explain the significance of the Prisoner's Dilemma, and how the model might be used to explain some forms of competition when there is uncertainty. 2) Explain the similarities and differences between Keynes' theory of consumption and Friedman's Permanent Income Hypothesis. 3) explain why the Marginal Rate of Substitution is equal to the price ratio for all goods, and its significance. 4) Briefly compare and contrast various models of how duopolists compete. 5) Explain whether the Efficient Market Hypothesis is a helpful theory, and why or why not. 6) Explain why financial theory rests on the mean and variance approach to the risk/return relationship. 7) Describe how Fisher and Modigliani helped explain our pattern of savings throughout our lifetime.
- In Salop’s model of entry deterrence, the unconstrained monopoly earns profits (in present value terms) equal to some amount v0. Suppose v0 = 100. If entry were to occur, the two firms would share the market, each earning v1.(A) Why do we expect 2 v1 to be less than 100 ? (B) The incumbent monopoly can prevent entry by expending a fixed and irreversible amount C that the entrant must match. What conditions on the size of C will both successfully prevent entry, and equally importantly, result in greater profit for the incumbent than by allowing entry?A large firm has two divisions: an upstream division that is a monopoly supplier of an input whose only market is the downstream division that produces the final output. To produce one unit of the final output, the downstream division requires one unit of the input. If the inverse demand for the final output is P = 1,000 − 80Q, would the company’s value be maximized by paying upstream and downstream divisional managers a percentage of their divisional profits?.A measure called Herfindahl-Hirschman Index is used to measure the degree of competition in an industry. The HHI is the square of each firm’s market share summed over the firms in the industry. (Where a market share is the percentage of sales in the market accounted for by that firm). For example, if an industry contains only three firms and their market shares are 60%, 25%, and 15% then the HHI (by squaring each firm’s share and summing them) is 4450. Some economists classify the market structures according to HHI scores. An HHI below 1,500 indicates a strongly competitive market, between 1,500 and 2,500 indicates a somewhat competitive market, and over 2,500 indicates an oligopoly. Given the information in the table, calculate the HHI in this industry. If yahoo and Bing were to merge, what would the HHI be? Google 67% Yahoo 18 Bing 11 Ask 3 AOL 1
- Suppose two gas stations operate at the same busy intersection. You notice that the posted prices are almost always the same. Assuming that these firms are engaged in tacit price collusion, can we automatically conclude that there is no competition for customers between the two stations?Industry A consists of four firms, each of which has an equal share of the market. Compute the Herfindahl-Hirschman index for the industry. Industry B consists of 10 firms, each of which has an equal share of the market. Compare the Herfindahl–Hirschman Indexes for the two industries. Now suppose that there are 100 firms in the industry, each with equal shares. What is the Herfindahl-Hirschman index for this industry? State the general relationship between the competitiveness of an industry and its Herfindahl-Hirschman indexCaptain Catahoula and Bow Wow Wonder are two of the four firms in the dog food industry. Before they notify the Federal Trade Commission and the Department of Justice of their plans to merge, Captain Catahoula hires you to determine the concentration of this industry. Use the table to calculate the Herfindahl–Hirschman Index (HHI) for this dog food industry and then complete the sentence. Firm Industry Bow Wow Wonder 10% Waggin' Tails 34% Mongrel Munchies 16% Captain Catahoula 40% What is the HHI for this dog food industry? HHI: You report that this industry is .