EBK MICROECONOMICS
2nd Edition
ISBN: 8220103679701
Author: List
Publisher: YUZU
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Question
Chapter 6, Problem 8P
To determine
Reason for a large increase in prices under the strict zoning laws and a smaller increase in prices under the lax zoning
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The figure below illustrates the market for steel. If the steel market is competitive, firms can produce steel at a constant marginal cost of $100 per ton. Therefore, the price of steel is $100 per ton, and 100 tons are produced. Assume that if all the steel companies consolidate into a monopoly, the monopoly marginal cost will fall to $70 per ton. Use the straight line tool to draw the monopoly marginal revenue and marginal cost lines (extend the marginal cost line to 300 tons). Then use the plot point tool to plot the monopoly profit maximizing price and output on the demand curve.
Part 2.
If the market is competitive, total surplus is $ _________
Part 3.
If the market is controlled by a monopoly, total surplus is $________
In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955).
While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening.
The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble Fruit…
In 1896, Colgate dental cream was introduced in tubes similar to those we use now. Today, the Colgate-Palmolive Company’s brand of toothpaste is the best-selling toothpaste in the world (ahead of the Crest brand marketed by Procter & Gamble, which was introduced in 1955). While Colgate and Crest enjoy the lion’s share of the toothpaste market, if you view the oral care shelf at your local drugstore or supermarket, you will find over a hundred different varieties of toothpaste. Colgate alone sells over 40 different varieties that are marketed under names ranging from Shrek Bubble Fruit to Colgate Total Advanced Whitening.
The high level of product differentiation in the toothpaste market stems from firms introducing new varieties in an attempt to boost their economic profits. In environments where makers of other brands (such as Crest) can easily enter profitable segments of the market, a profitable strategy is to attempt to quickly cover that segment (introducing Shrek Bubble…
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- Suppose an investigation reveals that the prices charged for drinks at a tourist resort are significantly higher than the prices charged for the same drinks at hotels in the nearby village. What might the explanation for this situation be?arrow_forwardBefore economic reforms were implemented in the countries of Eastern Europe, regulation held the price of bread substantially below equilibrium. When reforms were implemented, prices were deregulated and they rose dramatically. As a result, the quantity demanded for bread dramatically fell and the quantity supplied for supplied rose sharply. Change in Demand Increase Decrease Did not Change Indeterminate Change in Supply Increase Decrease Did not Change Indeterminatearrow_forwardIf the government wants to increase the market efficiency through price regulation, would you suggest the government setting the price equal to the firm’s marginal cost or its average total cost? Explain in detail with the diagram in partarrow_forward
- Harriet McNeil, proprietor of McNeil's Auto Mall, believes that it is good business for her automobile dealership to have more customers on the lot than can be served, as she believes this creates an impression that demand for the automobiles on her lot is high. However, she also understands that if there are far more customers on the lot than can be served by her salespeople, her dealership may lose sales to customers who become frustrated and leave without making a purchase. Ms. McNeil is primarily concerned about the staffing of salespeople on her lot on Saturday mornings (8:00 a.m. to noon), which are the busiest time of the week for McNeil's Auto Mall. On Saturday mornings, an average of 6.8 customers arrive per hour. The customers arrive randomly at a constant rate throughout the morning, and a salesperson spends an average of one hour with a customer. Ms. McNeil's experience has led her to conclude that if there are two more customers on her lot than can be served at any time…arrow_forwardQuestion The following appeared in an article in the Wall Street Journal: “Last week, true to discount roots dating to 1971, Southwest [Airlines] launched a summer fare sale on domestic flights, with one-way prices as low as $49. As in the past, major competitors were forced to follow suit.” Why would other airlines be “forced” to follow Southwest’s fare decrease? What if this fare decrease took place during an economic recession, when incomes and the demand for airline travel were falling?arrow_forwardMany economists argue that rivalry in goods is not a real difference, but just a pricing problem. What do they mean? • If there are too few individuals in a non-rival good, then it can become rivalrous. The way to solve this is raise price and reduce the number of users.• If there are too many individuals in a non-rival good, then it can become rivalrous. The way to solve this is raise price and reduce the number of users.If there are too few individuals in a non-rival good, then it can become rivalrous. The way to solve this is raise price and raise the number of users.• If there are too many individuals in a non-rival good, then it can become rivalrous. The way to solve this is lower price and increase the number of users.arrow_forward
- Suppose Brian is in the market for a used textbook and the campus bookstore is having a sale. If the initial price of the used book is $75$75 and the discounted price is $50$50, what is the percentage change in the book price? Round your answer to two places after the decimal. percentage change:arrow_forward1) Surveys have shown that the majority of American consumers think that price discrimination - the practice of the same firm charging different prices to different consumers for the same good or service - is unfair and should be illegal. Do you think price discrimination is unfair? Do you think price discrimination should be illegal? Explain. 2) Suppose price discrimination were made illegal, but only for airlines, so airlines would have to charge all consumers the same price regardless of when they purchased the ticket. Who benefits as a result of this change? Who is made worse off as a result? Do you think society would be better or worse off as a result? Explain. 3) Think of a time where you bought something from a firm that was engaging in price discrimination. What was it? Do you think you paid a lower price or a higher price as a result of price discrimination? Do you think it is unfair that someone else is charged a different price than you were for the same good or service?…arrow_forwardPrice discrimination is one of the major issues around the world and it will remain for coming years as well. the incentives towards price discrimination and the ability to price discrimination will be growing in the coming years as sellers will be increasingly tempted to engage in differential pricing. according to price discrimination theory, prices are expected to vary in response to differences in demand in different markets (third-degree price discrimination) or charges different price for different quantity of product (second-degree price discrimination). sellers are always tracking every moments of their customers to best fit their needs or to attract them to their products in the form of loyalty card, coupons, store credit card and many other forms incentives. price discrimination is, harmful to society when it leads to a misdistribution of resources meanwhile employment and income are not maximised. price discrimination is, however, also beneficial to society for it helps in…arrow_forward
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