Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 12, Problem 15P
To determine
To explain:
The story of long-run equilibrium in a
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I. Two firms, Tac-Burger Ltd. and Back-rib-Burger Ltd., use the same technology to produce output that is given by:
Q = 600(F1/2 + M1/3) K where F = Female worker; M = Male worker; K = capital
With the price of good (P) set at $1, Tac-Burger pays female an hourly wage WF and male a wage WM. The price of capital (r) is $1 and the quantity of capital is fixed at 1. Back-rib-Burger pays a wage W to both male and female.
a. The Press went after Tac-Burger accusing the company of gender discrimination. The CEO replied that their company was in the business to make money and their remuneration policy is consistent with the basic theory of profit maximization taught in basic principles of economics and managerial economics. What convincing argument must be put forward by the press to show that Tac-Burger indeed practices gender discrimination? What proof should the CEO provide to convince the public that the wage practice is fair?
b.…
“Why do industries like electricity or cable TV have just one or two major firms while other industries like restaurants or clothes have hundreds or thousands? What might be a general difference that leads to some industries having many firms while others are dominated by just one or two?”
In McCulloch v. Maryland (1819), the Supreme Court held that:
a.
congress was not allowed to outlaw slavery in U.S. territories
b.
the federal government had the implied power to create a national bank
c.
states had the ability to restrict interstate commerce within their jurisdiction
d.
the Supreme Court could declare acts of Congress to be unconstitutional
e.
state-chartered banks were immune from federal regulation
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I. Two firms, Tac-Burger Ltd. and Back-rib-Burger Ltd., use the same technology to produce output that is given by:
Q = 600(F1/2 + M1/3) K where F = Female worker; M = Male worker; K = capital
With the price of good (P) set at $1, Tac-Burger pays female an hourly wage WF and male a wage WM. The price of capital (r) is $1 and the quantity of capital is fixed at 1. Back-rib-Burger pays a wage W to both male and female.
a. The Press went after Tac-Burger accusing the company of gender discrimination. The CEO replied that their company was in the business to make money and their remuneration policy is consistent with the basic theory of profit maximization taught in basic principles of economics and managerial economics. What convincing argument must be put forward by the press to show that Tac-Burger indeed practices gender discrimination? What proof should the CEO provide to convince the public that the wage practice is fair?
b. Suppose Wf = $20, WM = $30,…
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Briefly describe the term patent rights
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16-4 A City and Its Unions
Robert G. Flanders Jr., the state-appointed receiver for Central Falls, RI, said his city’s declaration of bankruptcy had proved invaluable in helping it cut costs. Before the city declared bankruptcy, he said, he had found it impossible to wring meaningful concessions out of the city’s unions and retirees who were being asked to give up roughly half of the pensions they had earned as the city ran out of cash. Why does bankruptcy give the city bargaining power against its unions?
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Most public utilities (gas, electricity, water, and local telephone companies, for instance) are subject to rate of return regulation, under which a firm is allowed to choose its price, subject to its proving that it is not earning too much money. Typically, the firm is allowed to cover its expenditures for labor and material exactly and to earn a "fair" rate of return on its capital investment. Can you think of any problems with this sort of regulatory scheme? In particular, what do you think that this plan does to the firm's incentives to substitute capital for labor?
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Two firms, A and B, are each considering trying to develop a newwidget. Whichever firm is first to develop the new widget wins a patent worth $20 million plus a penny.Developing a new widget involves several ‘steps’. The firms alternate moves, with A moving first, until oneof them wins the patent. All moves are observed. In each turn, a firm can choose whether to take 0, 1, or2 development ‘steps’. Taking 0 steps in a turn costs that firm $0. Taking 1 step in a turn costs $4 million.And taking 2 steps in a turn costs $11 million. For simplicity, assume a zero discount rate. Initially, eachfirm is 4 steps away from completing development.(a) Describe and explain carefully what will happen in this patent race and why. [Hint: it may help toread Dutta ch 12 (but notice I changed the numbers).](b) Very briefly explain what is the economic rationale for granting ‘intellectual property rights’ such aspatents. What are some disadvantages for society of granting such rights?
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A film called The 33 tells the story of 33 coal miners in Chile who were trapped inside a collapsed coal mine for more than two months. While trapped inside the mine, the miners agreed that if they ever got out alive, they would sell their story as a group, and that none of them would tell their stories individually. In essence, they formed a cartel, agreeing to sell just one big story for a lot of money rather than each miner selling his own individual story. As it turned out, they did get out alive and they did stick to their agreement. None of the miners sold his story individually. That is, the “cartel” formed by these trapped coal miners worked; nobody cheated. Explain why this cartel, unlike almost all others, was successful. This is not a research question; you don’t have to have the factually correct answer to earn full credit on this question. Rather, a full-credit answer will explain the conditions under which a cartel will be successful and then indicate the specifics of…
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Recently, Pfizer and Allergan—the makers of Viagra and Botox, respectively—initiated a $160 billion merger. Pharmaceutical companies tend to spend a greater percentage of sales on R&D activities than other industries. The government encourages these R&D activities by granting companies patents for drugs approved by the Food and Drug Administration. For instance, Allergan spent large sums of money developing its popular wrinkle-removing neurotoxin, Botox, which is currently protected under a patent. Botox sells for about $15 per vial. Calculate the Lerner index if the marginal cost of producing Botox is $1.50 per vial. Does the Lerner index make sense in this situation?
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Briefly discuss the Value of Information in Managerial Economics.
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Briefly compare big-firm and entrepreneurial capitalism. In this criteria Criterion 1: Role of big firms
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what are two examples, of companies’ respecting the rights of employees and of companies’ failing to do so.
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In contrast to the Sherman Act, the Clayton Act of 1914
a. was more general, outlawing monopoly or attempting to acquire a monopolyb. identified specific practices that were illegalc. made interlocking directorates legal as long as they were reasonabled. invalidated the concept of "illegal per se"e. made cartels legal
English Common law became the basis for American Common Law. What does the Common Law say about damages for parties injured by restraint of trade?
a. They are not permittedb. Damages can be awarded in full to injured partiesc. Triple damages are awarded to injured partiesd. Only a fraction of damages will be awarded due to statutory restrictionse. The government could sue for damages on behalf of injured parties, and then give them damages net of taxes
Some capital equipment such as a moving assembly line only comes in one size. This usually tends to create
a. a significant diseconomy of scale at the plant level
b. a significant diseconomy of scale at the firm level
c.…
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Charles Zwirn Letter from La Crosse, Wisconsin, 1913 [Mr. Goldfish] took me into his house and gave me a very nice welcome. He then led me to the synagogue and introduced me to all the members. Mr. Goldfish is a Jew with a real Jewish heart. He is religiously inclined and the biggest businessman in the city. If any controversy arises, it is always settled by Mr. Goldfish. . . . [He] took me to a shop and they paid me $6 more than I earned in New York. When I wanted to thank him, he said that the only thing he expects of me is that I conduct myself properly and go on the right path so I can eventually succeed. This, he said, was the best reward I can give him. I did as he told me and saved a few hundred dollars. . . . Another man sent here had been in the country two months. . . . He was sent to Mr. Goldfish, who found him a job sorting corks for $2 a day. . . . He then left. By the way, . . . would you be so kind as to send to me a boy to drive a milk wagon on Mr. Jacob’s farm and an…
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