...Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) By and large, managerial decisions are not affected by either microeconomic or macroeconomic forces. B) Managerial decisions are affected primarily by macroeconomic forces. C) Managerial decisions are affected by both microeconomic and macroeconomic forces. D) Managerial decisions are affected primarily by microeconomic forces. 1) 2) Walmartʹs decision in 1994 to continue operating stores in specific cities in Mexico when other firms were pulling out would be best classified as: A) a microeconomic decision. B) a macroeconomic decision. C) both a microeconomic and a macroeconomic decision. D) neither a microeconomic nor a macroeconomic decision. 2) 3) Which of the following would be considered an example of a macroeconomic problem? A) Should Microsoft reduce the price of its Windows operating system? B) Should JP Morgan Chase increase the interest rate it charges its credit card customers? C) Should Mitsubishi eliminate one of its production shifts? D) Should the federal government extend the eligibility period for unemployment benefits? 3) 4) Walmartʹs entry into the market in Mexico had the effect of: A) reducing competition and raising the prices of many of the goods it sells. B) increasing competition and raising the prices of many of the goods it sells. C) increasing competit...
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...How do companies decide what price to charge for their sleek new gadgets? Why are some people willing to pay more for a product than others? How do your decisions play into how corporations price their products? The answer to all of these questions and many more is microeconomics. Read on to find out what microeconomics is and how it works. Tutorial: Microeconomics 101 What Is It? Microeconomics focuses on the role consumers and businesses play in the economy, with specific attention paid to how these two groups make decisions. These decisions include when a consumer purchases a good and for how much, or how a business determines the price it will charge for its product. Microeconomics examines smaller units of the overall economy; it is different than macroeconomics, which focuses primarily on the effects of interest rates, employment, output and exchange rates on governments and economies as a whole. Both microeconomics and macroeconomics examine the effects of actions in terms of supply and demand. (To learn more about supply and demand, see Economics Basics.) Microeconomics breaks down into the following tenets: •Individuals make decisions based on the concept of utility. In other words, the decision made by the individual is supposed to increase that individual's happiness or satisfaction. This concept is called rational behavior or rational decision-making. •Businesses make decisions based on the competition they face in the market. The more competition a business...
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...The central theory in all of the profit-maximizing outcomes rests on the idea that marginal revenue should equal marginal cost. The same is true in the case of a firm with monopoly power. Before we discuss the profit-maximizing outcomes, it is important to understand what is meant by monopoly and how does it affect revenues and costs. A firm has a monopoly if it is the only supplier in the industry of that particular product or products. Moreover there are no close substitutes. Therefore the consumers in this market have no choice but to buy from that one firm or not at all. For this reason, the monopolist is known as a price-maker because it has the opportunity to set prices at any desired level (Mankiw, 2000). Monopolies occur largely because of the existence of barriers to entry in a given industry. These barriers include legal barriers (patents and licenses), economic barriers and natural barriers. Under legal restrictions, government allows anyone firm a special right to manufacture or trade that particular product. This happens usually when a firm acquires a patent or a special right to market that particular product. Also sometimes the government would grant any one organization to dominate an industry such as a telecom firm that happens to be the only firm providing telecommunications services. Other barriers include control of a scarce resource or input as in the case of the South African diamond syndicate. Technical superiority as in the case of Microsoft is another...
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...define economics, microeconomics, the law of supply, the law of demand and identify factors that lead to changes in supply and demand. In addition, an analysis for the basis of trend in consumption patter as discussed in the article Trends in Consumer Spending (McCully & Moran, 2001) providing what has occurred to change the demand or supply of goods or services and the market prices of the goods and services. David Colander defines economics as “the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society” (Colander, 2008). The economic conditions of the past, approximately 24 months has dramatically changed how people view their decision making. When the stock market crashed in September 2008 and the financial markets suffered massive layoffs, people stopped buying. The Christmas shopping season, which generally puts retail stores in the black, suffered huge set backs and significant price reductions when inventory did not move. People were in panic and fear of losing their jobs and unwilling to spend money on nonessential purchases. The article, Overview: Microeconomics defines microeconomics as an attempt “to discover the way that each portion of the economy works; hence it focuses on the decisions of single individuals, business firms, industries, and levels of government” (Gale, 2008). Though there is no real clear separation of microeconomics from macroeconomics...
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...Supply and Demand Simulation Nora Chaparro ECO/365 April 28, 2014 Frank Vigil Supply and Demand Simulation According to Adams (2002), microeconomics is the interaction and behavior of individual units in an economy. On the other hand, however, he says that macroeconomics looks at the economy as an aggregate. While microeconomics has a narrow view of the economy, macroeconomics looks at the economy from a broad perspective. In the simulation, for example, Atlantis city is a small and friendly city with adequate infrastructure, which makes it suitable to habit. This can be viewed as the macroeconomic viewpoint of the city since the analysis covers a broad spectrum. The simulation further indicates that there is a low traffic and very little pollution and low crime rate. This establishes a more narrow perspective of the city, looking at individual components of the city that makes it conducive living environment. Adequate infrastructure is also a generalized concept making it a macroeconomic viewpoint of the city. The mention of the parks and housing narrows down the field into two different sublets of infrastructure, that is, housing and recreational facilities (microeconomic concepts). A shift in the demand and supply curve can move to the right or to the left depending on different market forces. A shift to the right of the supply curve would indicate that there has been a subsequent increase in the supply of two-bedroom apartments. There was a shift in the demand...
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...American Economic Journal: Microeconomics 3 (February 2011): 1–36 http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.1.1 Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration† By Glenn Ellison and Sara Fisher Ellison* This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents before patent expiration. It examines a cross section of markets, determining whether behavior is nonmonotonic in market size. Under some conditions, investment levels will be monotone in market size if firms do not invest to deter entry. Strategic investments to deter entry, however, may result in nonmonotonic investment because they are unnecessary in small markets, and impossible in large ones. Consistent with an entry-deterrence motivation is the finding that incumbents in medium-sized markets advertise less prior to patent expiration. (JEL D92, G31, L11, L21, L65) T he insight that firms may make “strategic investments” to alter future competitive conditions is one of the most fundamental ideas in industrial organization. Jean Tirole’s (1988) chapter reviewing arguments about how excess capacity, capital structure, advertising, contractual practices, learning-by-doing, and other actions can be used to deter entry is easily the longest in the text.1 Strategic investment models are difficult to test directly, however, and the vast majority of this literature is theoretical...
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...MIcroeconomics: Markets, Methods & Models Douglas Curtis and Ian Irvine | Version 2014/2015 $ ADAPTED OPEN TEXT FORMATIVE ONLINE ASSESSMENT COURSE SUPPLEMENTS COURSE LOGISTICS & SUPPORT a d v a n c i n g l e a r n i n g www.lyryx.com Copyright This work is licensed under a Creative Commons AttributionNonCommercial-NoDerivs 3.0 Unported License. http://creativecommons.org/licenses/by-nc-nd/3.0/deed.en_GB Douglas Curtis and Ian Irvine Edition 1.11 This edition is differentiated from the first edition solely by minor editorial adjustments. Content has not been altered. Microeconomics: Markets, Methods and Models About the Authors Doug Curtis is a specialist in macroeconomics. He is the author of twenty research papers on fiscal policy, monetary policy, and economic growth and structural change. He has also prepared research reports for Canadian industry and government agencies and authored numerous working papers. He completed his PhD at McGill University, and has held visiting appointments at the University of Cambridge and the University of York in the United Kingdom. His current research interests are monetary and fiscal policy rules, and the relationship between economic growth and structural change. He is Professor Emeritus of Economics at Trent University in Peterborough, Ontario, and Sessional Adjunct Professor at Queen’s University in Kingston, Ontario Ian Irvine is a specialist in microeconomics, public economics, economic inequality...
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...Microeconomics & Markets Frederieke Dijkhuizen Microeconomics Chapter 1. The fundamentals of managerial economics Manager: a person who directs resources to achieve a stated goal. Economics: the science of making decisions in the presence of scarce resources. Managerial economics: the study of how to direct scarce resources in the way that most efficiently achieves a managerial goal. Economic profits: the difference between total revenue and total opportunity cost. Opportunity cost: the explicit cost of a resource plus the implicit cost of giving up its best alternative use. The five forces framework -‐ Entry -‐ Power of input suppliers: industry profits tend to be lower when suppliers have the power to negotiate favourable terms for their inputs. -‐ Power of buyers: industry profits tend to be lower when consumers have the power to negotiate. -‐ Substitutes and complements...
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...competition and firms have very low control. The low concentration can be from 0 to 50 per cent and the industry can have a structure ranging from perfect competition to oligopoly. Since in industry A there are 20 firms and the CR is 20 per cent, it can be deemed as a low ratio. Therefore, the industry is a perfectly competitive one with a lot of firms competing with each other, and no one firm controls a big chunk of the market. A perfectly competitive industry has many buyers and many sellers, also the products are quite standard and resemble to each other (Microeconomics: The Basics). The number of sellers makes it impossible for any single firm to control the market and the price is determined by the demand and supply conditions. Since the products are very similar or identical to each other, the buyers can switch from one good or service to another when there are price differentials. Additionally, the barriers to entry and exit are quite low; hence firms can easily enter and leave the industry. As a result of all these features, the economic profits are zero and maximum efficiency is achieved. Nevertheless, the pure perfect competition does not exist in real world, only some industries are operating close to this ideal situation. When there is an increase in the demand for the product in a perfectly competitive industry, then in the short run the price of the good or service rises. This will allow the 20 firms in the industry to make positive profits. A shift of the demand...
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...Government regulations in a new market (Author’s name) (Institutional Affiliation) Macro economic theories Microeconomic involves the study of people and the decisions of businesses in an economy. The decisions regard the allocation of scarce resources to the unlimited wants of humans. Microeconomics concentrates on the supply and demand of goods in the economy (Frank & Bernanke, 2004). The forces of demand and supply control the prices of goods and services. On the contrary, macroeconomics looks at the behavior of the economy in general. It does not concentrate on particular companies and industries. Macroeconomics looks at the factors that affect the economy. On the other hand, microeconomics focuses on how a particular company can maximize profits while experiencing low costs. It deals with how firms can maximize their profits. Microeconomics aims to analyze market mechanisms to establish the price of goods in an economy with scarce resources. It deals with market failure, where the market does not produce satisfactory results. Microeconomics describes the theoretical conditions that are necessary for a perfect market competition (Mankiw, 2012). In this, case the demand increases when the prices of the commodity goes down. Legalizing marijuana will impose taxes on the product and prices will go up. The prices of marijuana will increase, it will affect the demand of the product will fall. Supply of marijuana at this moment will...
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...Market Overview of Caruthersville Jeffrey Tarpley ECO204: Principles of Microeconomics Nicholas Bergan October 7, 2013 Market Overview of Caruthersville Jeffrey Tarpley ECO204: Principles of Microeconomics Nicholas Bergan October 7, 2013 The town of Caruthersville Missouri has a diversified market structure on the local level. It has some businesses that supply products on a national level and even on the international level. The objective is to find what is presently here and what can be done to improve the business environment in Caruthersville. Lets begin by looking at the types of market structures. A large number of buyers and sellers, ease of entry and exit in the industry, perfect knowledge, and mobility of resources characterize perfect competition market. (Amacher & Pate, 2013, p. 9.1) A market structure that has only one seller of a product with no close substitutes is considered a monopoly. Many firms selling differentiated products with easy entry and exit in the industry are called monopolistic competition. A few firms competing with mutual interdependence in the market is called oligopoly. The structure called oligopoly is sometimes viewed as a shared monopoly. (Amacher & Pate, 2013, p. 11.4) Internet providers would fall into this category; they seem to offer the same service at relatively the same price level. There seems to be obstacles of government regulations and licensing that help to deter new competition from entering...
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...COURSE STRUCTURE COURSE: ECO1203 ECONOMICS 1 (4 cr) ECO1207 MICROECONOMICS (4cr) PREREQUISITE(S): None COURSE DESCRIPTION: This course is designed to enhance the students’ understanding of basic microeconomic concepts and theories in order to equip them with the basic conceptual abilities and skills in economic problem solving. The theories will include the basic economic problem, supply and demand analysis, consumer behaviour, market structure, production and cost and market failure. LEARNING OBJECTIVES: The aims of this course are to enable students to: Apply basic theoretical microeconomic models as a framework for understanding the real world problems. Establish the ability to communicate ideas pertaining to the basic microeconomic concepts, theories and events effectively, both verbally and in writing. LEARNING OUTCOMES: Successful students will be able to: Explain the core economic problems such as the scarcities and choices. Explain how economic problems can be reduced by improving the use of available resources and by using the concept of opportunity cost. Explain how equilibrium prices and goods are determined by using demand and supply curves analysis. Explain the behavior of individual firms towards maximizing profits (minimizing costs) in a perfectly competitive or monopoly market in determining the optimal production of goods and services and optimal price level. Calculate the necessary production costs to determine the profit maximizing...
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...MARKET STRUCTURE IN BANGLADESH QUESTION Question 3 (44 marks) Please note that this question requires substantial research Part A – (8 marks) Explain monopoly and monopolistic competition market structures, and identify the key factors that distinguish them Part B – (18 marks) Choose two different industries from your home country representing monopoly and monopolistic competition market structures. Identify their key characteristics in relation to the factors used to differentiate between the market structures. Using the real 5/5 data from your case studies analyse how well each case study fits with the different market structures. Part C – (6 marks) For the monopoly firm in your case study, identify the potential market power that it has and the types of controls (if any) that are in place to limit this. Part D – (6 marks) For the monopoly firm in your case study, identify if there are other benefits generated by the monopoly that would be difficult to gain from a monopolistic competition market structure. Part E – (6 marks) For the monopolistic competition industry, identify the extent to which firms are able to differentiate their products, and whether this allows them to gain some price advantages. SOLUTION Monopoly and monopolistic competition market structures Monopoly Market Structure The monopoly is understood to be the market structure associated with single seller of a product which has huge demand either as a result of necessity or because...
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...Econ 101: Intro to Microeconomics Spring 2012, Handout 8 Solutions More on Monopolies 1. A monopoly faces a market demand curve given by P = 42 − Q. Its marginal cost curve is given by M C = Q. (a) Find an equation for the marginal revenue curve. Graph market demand, marginal revenue, and marginal cost for this monopoly. Double the slope of the demand curve to get the MR: M R = 42 − 2Q. The graph should show a line twice as steep as the original demand curve, but with the same price intercept. Note: the “double the slope” rule only works when the equation is solved for P! (b) Find the profit-maximizing level of production for this monopolist. M R = M C to get 42 − 2Q = Q ⇒ Q = 14. (c) What price will the monopolist charge? Plug the Q from part (b) into the demand curve: P = 42 − 14 = $28. (d) Is marginal revenue equal to price? Why or why not? Marginal revenue is less than price because the price effect (an increase in price per unit tends to increase total revenue) and the quantity effect (an increase in the price per unit tends to decrease the quantity sold, which lowers total revenue) move in opposite directions. (e) What price would be socially optimal? 1 Econ 101: Intro to Microeconomics Spring 2012, Handout 8 Solutions Socially optimal price where M C = P ⇒ Q = 42 − Q ⇒ Q = 21 ⇒ P = 42 − 21 = $21. (f) What is the monopolist’s total revenue? T R = P ∗ Q = 28 ∗ 14 = 392 2. Suppose a local utility company has a demand curve given by P = 120 − 4Q. TC for...
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...Monopoly Erinn Copeland ECO204: Principles of Microeconomics (BQC1232A) Instructor: Melvin Landry September 10, 2012 Monopoly Monopolies in the business world exist because dominating companies create obstacles that impede smaller companies from having an impact on the market. Monopolies are defined formally "as one firm within an industry that produces a product for which there are no close substitutes and in which significant barriers exist to prevent new firms from entering the industry” (Case, Fair, & Oster, 2009, pg. 254). When operating within an industry where entry into that industry is easy, a company has some market power because the product they are offering is the norm; however, when operating as a monopoly, companies dominate the market because their distinctive product carries more market power. Is it more beneficial for a company to operate as a monopoly or is it more beneficial for a company to share market power with other companies within their industry? Monopolies have stakeholders such as other businesses in their industry and consumers, which are affected by how they dominate an industry. How effective is a monopoly for the stakeholders within that company? Companies that operate as a monopoly do so because there are benefits to operating this way. In 2007, the potato chip industry in the Northwest was competitively structured and in long-run competitive equilibrium; firms were earning a normal rate of return and were competing in a monopolistically...
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