Microeconomics (7th Edition)
Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 15, Problem 15.2.6PA

Subpart (a):

To determine

Reason for not considering high technology firms as monopolies.

Subpart (a):

To determine

Reason for not considering high technology firms as monopolies.

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Business journalists frequently write that the financial markets expect that firms that possess market power (e.g., firms that have prominent brand names) will raise their prices on a regular (e.g., annual) basis. Is this a correct characterization of the pricing behavior of firms with market power (e.g., firms that are monopolies)?
(Regulating Natural Monopolies) The following graph representsa natural monopoly.a. Why is this firm considered a natural monopoly?b. If the firm is unregulated, what price and output wouldmaximize its profit? What would be its profit or loss?c. If a regulatory commission establishes a price with thegoal of achieving allocative efficiency, what would bethe price and output? What would be the firm’s profitor loss?d. If a regulatory commission establishes a price with thegoal of allowing the firm a normal profit, what would bethe price and output? What would be the firm’s profitor loss?e. Which one of the prices in parts b, c, and d maximizesconsumer surplus? What problem, if any, occurs at thisprice?
1.ALCOA does not have the monopoly power it oncehad. How do you suppose their barriers to entry wereweakened? 2.For many years, the Justice Department has triedto break up large firms like IBM, Microsoft, and mostrecently Google, on the grounds that their large marketshare made them essentially monopolies. In a globalmarket, where U.S. firms compete with firms from othercountries, would this policy make the same sense as itmight in a purely domestic context?
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