...Managerial Economics MIDTERM Exam What changes can you envision to the real economy, should Rifkin’s vision of a zero marginal cost society, become reality? For me, Jeremy Rifkin is a great social theorist. I’m mostly agreeing with him, with his conclusions and visions of the future economy. They looks like perfect and definitely it’s a “think big” way of delivering the information. His book “The Zero Marginal Cost Society” is must read, of course. Trigger is a zero marginal cost. I’m completely agreed with his “Internet of Things” thoughts. It is sort of intelligence brain. Communication Internet create a new technology platform that connects everything and everyone. Nowadays, there are a lot of platforms, that are connected to each other. You can login to any website with the using of your “Facebook” page, “Google” profile or even “LinkedIn”, if you are looking for a job. At this time, government can see, which type of music I’m listening to, just because I have logged into my “Soundcloud” account with my “Facebook” page. They can trace it easily. Location serviced are also provided with the using of smartphones. Each photo has a geo tag in it. Everything works like a big system. Apple use fingerprints password system and it is connected directly with your iTunes account and usually also to your credit card, because you need to buy something in their online store with your card. So they got a big and very saturated picture of the world that is using its assets like...
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...envisions a world beyond markets, where we could learn how to live together in, what he calls, a global “collaborative commons”. He explains how the emergence of the Internet of Tings is leading us in a new era: the age of free. He conceives that this future is only realisable, if we start questioning the very basis of capitalism. In this light, Rifkin describes how our capitalistic structure has always wanted a reduction in marginal costs (the cost of producing an additional unit). However he acknowledges the fact that nowadays, we are experiencing a technological revolution, spurred by the Internet of Things phenomenon, and that this revolution is bringing marginal costs near to zero, thus making goods and services priceless, free and abundant. This view, in his opinion, will obviously leads to the eclipse of capitalism. Let me give you a simple example from recent history: the music industry. Over the last few decades, this industry has become far less profitable, once we found out that tracks could be digitized and copied at near zero marginal cost....
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...Dr. Mohammed Alwosabi Econ 140 – Ch.2 Notes on Chapter 2 PRODUCTION POSSIBILITIES FRONTIER This chapter reinforces the central themes of Chapter one by laying out the core economic model, the PPF, and using it to illustrate the concepts of scarcity, tradeoff and opportunity cost. It explains, with a model, the concepts of marginal cost and marginal benefit, introduces efficiency, and explains how we can expand production by accumulating capital and improving technology. The economic problem of allocating resources (making choices) in a situation of scarcity can be illustrated by explaining the concept of the production possibilities frontier (PPF). Production Possibilities Frontier (PPF) refers to the maximum combinations of goods and services an economy can produce efficiently using its available resources and technology within a given period of time. It is the boundary between the goods and services that can be produced from those that cannot. The PPF model is a graphical illustration with the following assumptions 1. The society has a fixed amount of available common resources. i.e., the same limited resources can be used to produce either of the goods. 2. The society has a fixed amount of technology 3. Full employment of resources 4. The choice is between producing two goods: Machines and Food. All other goods and services are assumed being the same (ceteris paribus). This assumption is to allow the use of simple graphical analysis. Note that these assumptions are...
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...profit-maximizing firm is equal to its marginal cost because if price were above marginal cost, the firm could increase profits by increasing output, while if price were below marginal cost, the firm could increase profits by decreasing output. A profit-maximizing firm decides to shut down in the short run when price is less than average variable cost. In the long run, a firm will exit a market when price is less than average total cost. 3. In the long run, with free entry and exit, the price in the market is equal to both a firm’s marginal cost and its average total cost, as Figure 1 shows. The firm chooses its quantity so that marginal cost equals price; doing so ensures that the firm is maximizing its profit. In the long run, entry into and exit from the industry drive the price of the good to the minimum point on the average-total-cost curve. [pic] Figure 1 Questions for Review 1. A competitive firm is a firm in a market in which: (1) there are many buyers and many sellers in the market; (2) the goods offered by the various sellers are largely the same; and (3) usually firms can freely enter or exit the market. 2. Figure 2 shows the cost curves for a typical firm. For a given price (such as P*), the level of output that maximizes profit is the output where marginal cost equals price (Q*), as long as price is greater than average variable cost at that point (in the short run), or greater than average total cost (in the long run). [pic] Figure...
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...B. Consumers ability to substitute different goods The explanation for the law of demand involves: A. The markets ability to equate supply demand B. Consumers ability to substitute different goods C. The governments ability to set prices D.The suppliers ability to substitute inputs A. A normal good John estimates that with every 20% increase in income, the quantity of grapes purchased rises by 11.2%. From this information one would conclude that grapes are A. A normal good D. Not demanded C. An inferior good D. Luxury Star this term You can study starred terms together Play audio for this term C. Not maximizing revenue since elasticity is less than one and revenue will increase following a price increase when demand is inelastic In California the price elasticity for vanity license plates is .5 and their price is $29. California is: A. Maximizing revenue since elasticity is less then one and revenue will increase following a price increase when demand is inelastic B. Not maximizing revenue since elasticity is less than one and revenue will get decrease following a price increase when demand is inelastic. C. Not maximizing revenue since elasticity is less than one and revenue will increase following a price increase when demand is inelastic D. Maximizing revenue since elasticity is less than one and revenue will decrease following a price increase would demand is inelastic. C. Consumer surplus will decrease and there will be some...
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...benefit from the goods they purchase, while producers pay the costs of production. An externality (sometimes called a spillover) is a cost or benefit that goes to someone external to a transaction. Pollution is a negative (cost) externality. Education and research create a positive externality. Externalities can result from consumption or production. 2 An Example: Suppose that the costs of raising livestock are mostly borne by the rancher, but there is a spillover cost. Streams nearby get polluted, and this affects people (and other species) who use the stream as well as spinach farmers who also use the water for irrigation. Ranchers will consider their own costs of production, but the costs to others could be greater than the surplus from cattle production. 1 3 Negative Externalities • If there is an external cost from production, the Marginal Social Cost is higher than the producer’s Marginal Cost (competitive Supply). • The competitive equilibrium will produce more than the optimal quantity for Society. • If there is an external cost to consumption, the Marginal Social Value is less than Demand. 4 Positive Externalities • If there is an external benefit from consumption, the Marginal Social Benefit is higher than consumer Demand. • The competitive equilibrium will produce less than the optimal quantity for Society. • If there is an external benefit to production, the Marginal Social Cost is less than Supply. 2 5 Externalities • Negative Production...
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...to measure the total economic well-being of a society? Suppose there is a all-powerful, well-intentioned dictator called a social planner who can allocate goods among members of society. This social planner wants to maximize the welfare of everyone in society. Should the social planner allow the economy to reach an equilibrium by itself and stay there, or alter the equilibrium in some way? How to measure welfare of everyone in society? One measure is the sum of everyone’s surplus, called total surplus. This is consumer surplus plus producer surplus. Since consumer surplus measures the benefit consumers receive from participating in a market, and producer surplus measures the benefit producers receive from participating in a market, total surplus measures the sum of all individual benefits from participating in a market. Consumer surplus distortion of the market, amount paid by buyers equals amount received by sellers. So under these conditions, the total surplus equals Total surplus = total value to buyers − total cost to sellers. An allocation is efficient if it maximizes total surplus. This means that the difference between value to buyers and cost to sellers is maximized. It is maximized when every buyer whose value of a good is higher than the cost to a seller of the good, buys the good from a seller whose cost is lower than the buyer’s value. An allocation is inefficient if either a good is not being produced by sellers with lowest cost, or if it is not being bought by buyers with...
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...because all humans are greedy. This means that we will always want more of what is there and demand always initially exceeds supply, but supply will then catch up, and over time will fall behind again, although this bottlenecking' is always temporary. This can be seen in fibre optic cables, as they catapulted the amount of information able to be transferred by 100 times at once, however, society still demands bigger and faster amounts. With this, we will still observe price rationing, as we are so greedy that we want to have as much money as humanly possible, unless the resource that is not scarce is actually our money. b. The Council of a large university, after considering two sites for building a new sporting complex, chose to build on a plot of land the university already owned rather than on another tract of land that the university would have to buy. The reason given was that the chosen site lowered the cost of the sporting complex because the land was free, whereas the other site would cost over $3 million. Analyse this reasoning. This example is an example of an opportunity cost. They could have spent $3 million on a block of land that could have possibly been better than the one they own, or they could use that $3 million dollars on some other part of the university. Using the free land is a good idea because it frees up money that could be used to build and improve the sporting facilities, or could be put into more important parts of the university. Overall...
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...price is $4 per unit, how many units will a profit maximizing perfectly competitive firm produce? A) 20 B) 0 C) 5 D) 30 3) In the long run, perfectly competitive firms earn zero economic profit. This result is due mainly to the assumption of A) a perfectly elastic market demand. B) unrestricted entry and exit. C) price taking by the firms. D) few buyers and sellers. 4) Which of the following conditions allows perfect competition to arise? A) Attempts by each firm to make their product different from products produced by other firms reinforces competition between firms. B) Sellers and buyers are well informed about available quantity but not prices. C) New firms must operate more efficiently in order to overcome the competitive advantage of existing firms. D) The minimum efficient scale of a single producer is small relative to the demand for the good or service. [pic] 5) The figure above shows a perfectly competitive firm. The firm is operating; that is, the firm has not shut down. The firm is A) earning a normal profit. B) incurring an economic loss of $600. C) incurring a economic loss of $200. D) earning an economic profit of $200. 6) The figure above shows a perfectly competitive firm. The firm will shut down in the short run if A) total fixed costs exceed $200. B)...
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...markets, monopolies, and oligopolies (Colander, 2010). A perfectly competitive market exists when every contributor is considered a “price taker”, and none of the contributors influences the price of the product it sells or purchases. Two examples of a perfectly competitive market would be milk and gas. There could be many suppliers of both products, and if one supplier wants to raise their price higher than the price the market determines, consumers will go elsewhere to purchase the item in need. Other characteristics could include: zero entry and exit barriers, zero transaction costs, profit maximization, homogeneous products, and perfect factor mobility (Colander, 2010). In a competitive market price is determined the quantity of product, marginal revenue, and the marginal cost. If the marginal revenue is higher than the marginal cost then the firm can set the price based on those numbers. If the marginal cost outweighs the marginal revenue, then the firm begins to lose money. The firm is looking for the right number that will maximize profits by having a higher revenue...
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...Imperfect competition are those types of markets that are between perfect competition and monopoly ▪ Monopolistic competition is one such example. o Characteristics of Monopolistic competition ▪ Many sellers ▪ Products are slightly different • Producers are not price takers which means they each face a downward sloping demand curve ▪ Free entry and exit, therefore, zero economic profit in the long run ▪ Example: Pho, Cereal? o Short Run Equilibrium of Monopolistic Competition ▪ Profit maximization decision is similar to monopolist • Produce the quantity where MR =MC • Price is set on the demand curve • If P > ATC: profit • If P < ATC: loss (potential similar to short run competitive firm) [pic] o Long Run Equilibrium [pic] ▪ Zero economic profit • If firms are making profit in short run o new firms enter the market...
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...Exam 1 ECN 201 Microeconomics Chapter 1 5) What does scarcity have to do with the fact that people must make choices? Answer: Scarcity implies that people cannot have everything they want. This implies that ways must be found to determine which of the many goods that people want will actually be produced. Further, since any person cannot have everything he or she wants, the person must decide which specific things to acquire. That is, the person must make choices. Diff: 2 Topic: 1.1 The Power of Economic Analysis AACSB: Analytic skills Question Status: Previous Edition 6) What is economics and what does it try to explain? Answer: Economics is the study of how people allocate their limited resources in an attempt to satisfy their unlimited wants. Therefore, it is the study of how people make choices. Economics tries to explain real-world behavior, especially as it relates to interactions of people confronting scarcity. Diff: 1 Topic: 1.1 The Power of Economic Analysis AACSB: Analytic skills Question Status: Previous Edition 1.2 Defining Economics 1) Economics is best defined as the A) study of how people make choices to satisfy their wants. B) study of individual self-interests. C) study of how government can most efficiently raise funds by taxation. D) process by which goods are sold in free markets. Answer: A Diff: 1 Topic: 1.2 Defining Economics AACSB: Analytic skills Question Status: Previous Edition 87) Distinguish between...
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...Assignment The Sherman and Clayton Acts Click Link Below To Buy: http://hwcampus.com/shop/assignment-sherman-clayton-acts/ 1. The Sherman and Clayton Acts The Clayton Act of 1914 classifies several business practices as illegal, including price discrimination and tying contracts, if they "substantially lessen competition or tend to create a monopoly." The Clayton Act of 1914 is an example of which of the following? Antitrust laws Price regulations 2. The Clayton and Celler-Kefauver Acts Which of the following activities are prohibited by the Clayton Act when they lead to less competition? A buyer is forced to buy multiple products from a producer in order to get a desired product. Each of these answers is correct. A director from one business sits on the board of a competing firm. A firm acquires a major percentage of the stocks of a competing firm. 3. The Herfindahl index Suppose that three firms make up the entire wig manufacturing industry. One has a 40% market share, and the other two have a 30% market share each. The Herfindahl index of this industry is _________ (a.10,000 b.6,000 c.3,400 d.4,000 e.3,000). A new firm, Mane Attraction, enters the wig manufacturing industry and immediately captures a 15% share of the market. This would cause the Herfindahl index for the industry to ___________ (a.fall b.rise c.remain the same). The largest possible value of the Herfindahl index is 10,000 because: An industry with an index higher than 10...
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...about economic profit? Perfectly competitive markets are characterized by low sunk costs, perfect information, no entry or exit costs, no search costs, identical products and an infinite numbers of sellers. In a perfectly competitive market there are many firms and many buyers, all of which are price takers, meaning they have no control over prices. As price takers, firms face a highly (perfectly) elastic demand curve, meaning that they can only change revenue by changing the quantity produced. Firms in a perfectly competitive market will produce where MR = MC. Since firms are price takers, MR = Price. As a result, when marginal cost is equal to marginal revenue, it is also equal to price. If firms are realizing positive economic profits, other firms with similar cost structures will have an incentive to enter the market: one competitive firm’s economic profits indicate that production of that good is more profitable than any other available allocation of resources, causing other firms to invest. Once new firms enter the market, there is an increase in the MARKET, or AGGREGATE supply which will change the price that individual firms face, causing a reduction in the price. Firms will enter until economic profits are zero, at which point the intersection of the price and the marginal cost intersects the minimum of the average total cost. (Note additionally the assumptions about cost structures and consistent prices in different places that are embedded in this definition...
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...hydro-powered vehicle are going to receive subsidies worth 1 million yen in total (8300 USD). Using concepts such as law of demand, externality and market failures from an economic perspective, we are able to better interpret the reasoning behind these government policies as well as potential benefit and risk in the future. Japan is the third largest automobile market in the world with 4.7 million new cars registered annually (Statista Inc.). Among all the newly registered vehicles, only 30% of them use renewable energy such as hybrid fuels and electricity cells. Hydro-powered vehicle is still a relatively new concept to Japanese car market. However, replacing gasoline cars with hydrogen ones offer great benefit to the society. Thanks to the zero emission nature of hydrogen fuel, the greenhouse gas emission from the road will significantly go down. Environmental damage such as air pollution, acid rain and global warming can be reduced. Considering Japan’s high population density and urbanization state, environment is a topic that affects every citizen’s life quality. With the pollution emitted by cars going down, air quality and water quality of metropolitan areas will improve significantly. Improved citizen health will in return lower the burden of social welfare system in Japan. As a result, the social benefit of reduced environmental damage could be a great deal to the nation....
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