Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 12, Problem 7E
To determine
To Explain: The manner in which the price information was shared among the rival oligopolists when collusion among oligopolists has facilitated sharing of information and the reason that the court found these actions to be an antitrust violation. The U. S. Supreme Court interpreted the anti-trust law by reading the case summary of U.S v. U. S. Gypsum Co. et al. (438 U. S. 422), that is available in website www.stolaf.edu/people/becker/anitrust/summaries/438us422.htm.
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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?
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The following table shows the maximum amount five potential car buyers are willing to pay for each level of sales. Suppose that the cars are being sold by a car dealer operating as a monopoly (perhaps because there are no other car dealers in the market).
Maximum Amount He or She Would Pay for the Car
Buyer 1
$40,000
Buyer 2
$35,000
Buyer 3
$30,000
Buyer 4
$25,000
Buyer 5
$20,000
a) If the price of the car is $30,000, the revenue will be $............thousand.b) If the marginal cost of each car is $20,000. The monopolistic car dealer will want to sell 3 cars and the price will be $................. thousand.c) In a perfectly competitive market, the number of cars sold would be 5 cars.
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Chapter 12 Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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