Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 12, Problem 10QP
To determine
Explain the reasonable restraint of trade and the contract is reasonable restraint of trade or unreasonable restraint of trade.
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The courts have ruled that it is reasonable restraint of trade (and therefore permissible) for the owner of a business to sell his business & a contract with the new owner saying that he will not compete with her within a vicinity of, say, 100 miles , for a period of, five years. if this type of contract is a reasonable restraint of trade, you can give an example of what you would consider an unreasonable restraint of trade? explain how you decide what is a reasonable restraint of trade and what is not.
Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends.
a. What must be true of this arrangement? Which sentence is true?
Juan believes he is better off with this contract, but in reality, the wealthy American buyer is taking advantage of Juan's naiveté.
When Juan and other farmers in Colombia sell their coffee beans to foreigners, their nation as a whole gains in the long run, as countries gain from trade.
While this arrangement is good for Juan, he would be better off if the government had negotiated the contract for him because the government could have gotten a better price.
Juan and other farmers in Colombia who make such transactions are made better off as a result.
b. What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium? Which sentence is true?
Juan is earning zero economic profit selling coffee.
Juan has…
According to the Federal Trade Commission, “Many mergers benefit competition and consumers by allowing firms to operate more efficiently. But some mergers change market dynamics in ways that can lead to higher prices, fewer or lower-quality goods or services, or less innovation.” Antitrust laws often allow the former pro-competitive types of mergers, but prohibit the latter anti-competitive types. Suppose that one looks over the historical record of antitrust enforcement and finds that while the authorities have permitted some mergers and blocked others, the industry’s average price has tended to fall whenever a merger has been permitted and occurred.
a) Based solely on the information provided above, is it correct then to infer that the antitrust authorities should have been more lenient and permitted more mergers? Why or why not?
b) Based solely on the information in the question, is it likely that these merged firms sell products that are substitutes or complements? Why
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Similar questions
- In the 1980s, PepsiCo Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company. Shortly thereafter, the Coca-Cola Company, with 39 percent of the market, indicated it wanted to acquire the Dr Pepper Company. Seven-Up and Dr Pepper each controlled about 7 percent of the market. In your judgment, was the government’s decision to block these mergers appropriate?arrow_forwardWhat are the four most important ways a firm becomes a monopoly? Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Explain. Assume the graph below represents the market for a monopolist. What quantity will the monopolist produce, and what price will she charge? What will her total revenue, costs, and profit be at this level of production? What will the deadweight loss for society be at this level of production? (Assume the MC curve is a straight line between the relevant points for this calculation.) 3. U.S. antitrust laws are designed to prohibit monopolization and encourage competition. Why, then, does the government erect barriers to entry and create monopoly power by granting firms patents?arrow_forwardWhat are the four most important ways a firm becomes a monopoly? Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Explain. Assume the graph below represents the market for a monopolist. What quantity will the monopolist produce, and what price will she charge? What will her total revenue, costs, and profit be at this production level? What will the deadweight loss for society be at this level of production? (Assume the MC curve is a straight line between the relevant points for this calculation.)arrow_forward
- Rod and Todd Flanders have been working jobs in HR that pay $40,000 and $20,000 per year, respectively. They are trying to decide whether to quit their jobs and jointly open a snow cone shack, which they estimate can earn $100,000 per year. According to the Nonstrategic view of bargaining, how will the snow cone shack proceeds be split? Rod and Todd Flanders have been working jobs in HR that pay $40,000 and $20,000 per year, respectively. They are trying to decide whether to quit their jobs and jointly open a snow cone shack, which they estimate can earn $100,000 per year. According to the Nonstrategic view of bargaining, how will the snow cone shack proceeds be split? Rod gets $50,000 and Todd gets $50,000 Rod gets $66,666.67 and Todd gets $33,333.33 they won't quit their jobs. Rod gets $60,000 and Todd gets $40,000arrow_forwardShow that if Pete increases production by 100 utensils he will earn more profit, assuming that Pat sticks with the quantity you found above, which is half of what would be produced if the industry were controlled by a monopoly. Next, calculate what profit each would make if Pat also cheats by producing 100 more utensils. Assuming that they both calculate that the other will "cheat" and produce at this higher amount, would either have an incentive to further overproduce? What would happen to either seller's profit by producing another 100 more units? If cheating beyond this point will drive down one's own profit, and thus is not in anyone's interest, could this point be called a "Nash" equilibrium?arrow_forwardPlease, write a 10 sentence (maximum) essay on how you could use the Herfindahl-Hirschman index to analyze changes in market concentration in your chosen industry/market (what data would you collect, how would you use the data to draw conclusions about market concentration).arrow_forward
- Respond to the following: In today's economy, there are powerful companies that seem to control massive segments of different markets. Using the NEXIS-Uni Legal Database in the Strayer Library or the FTC website below, research a company that has been sued for anti-competitive behavior in the last five years. Explain the facts of the lawsuit, why the actions were anti-competitive, and whether it is a horizontal restraint of trade or a vertical restraint of trade. (Explain these terms in your answer.) (Note: Do NOT use Amazon, Google, Facebook, Qualcomm, Samsung, or Apple. Try to find a lawsuit from a company in your home state, if available). Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardFor many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global market, where U.S. films compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context?arrow_forward
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