Question.2974 - 1. Assume an industry is composed of the following eight firms.Company Market ShareFirm A 30 percentFirm B 25 percentFirm C 15 percentFirm D 10 percentFirm E 7 percentFirm F 6 percentFirm G 4 percentFirm H 3 percenta. If Firms B and C propose a merge, would the Antitrust Division likely challenge the merger? Why or why not? b. If firms G and H propose a merger, would the Antitrust Division likely challenge the merger? Why or why not?2. The widget Industry in Anytown is a monopoly, controlled by Widget Corp. Its demand curve for the local market is given by P = 800 – 20 W Where W represents the number of widgets sold per period. The total cost function (including opportunity or implicit costs) for Widget Corp. is TC = 300 + 500 W + 10 W 2 a. Assuming the industry is unregulated, what are the equilibrium price and output and economic profits earned by Widget Corp.? b. If the industry is regulated and the regulatory authority forces Widget Corp. to earn only a normal return on investment (which is included in its cost function), what is the resulting equilibrium price and quantity? c. What happens to consumer surplus? What happens t o the economic profits earned by Widget Corp.? 3. Discuss the various ways governments can handle externalities, such as noise from a local airport or a barking dog or building of commercial office space or an industrial building in a residential area? How does the assignment of property rights affect the outcome? Under what circumstances would a socially optimal solution arise without any government intervention? Under what circumstances would government intervention likely move the outcome closer to a socially optimal solution?
Answer Below:
Assume xx industry xx composed xx the xxxxxxxxx eight xxxxx Company xxxxxx ShareFirm x percentFirm x percentFirm x percentFirm x percentFirm x percentFirm x percentFirm x percentFirm x percenta xx Firms x and x propose x merge xxxxx the xxxxxxxxx Division xxxxxx challenge xxx merger xxx or xxx not xxx Herfindahl xxxxx before xxxxxx is xx Now xxxxxxx the xxxxx B xxx C xxxxx then xxx new xxxxxxxxxx index xxxxx be xx The xxxxxxxx generally xxxxxxxx markets xx which xxx HHI xx between xxx points xx be xxxxxxxxxx concentrated xxx consider xxxxxxx in xxxxx the xxx is xx excess xx points xx be xxxxxx concentrated xxxxx the xxx is xxxxxxxxxx by xxxx than xxxxxx and xxx market xx highly xxxxxxxxxxxx thus xxx Anti xxxxx Division xx likely xx challenge xxx merger x If xxxxx G xxx H xxxxxxx a xxxxxx would xxx Antitrust xxxxxxxx likely xxxxxxxxx the xxxxxx Why xx why xxx The xxxxxxxxxx index xxxxxx merger xx or xxxxx the xxxxxx the xxx index xxxxx be xx Since xxx change xx HHI xx less xxxx it xx unlikely xx have xx adverse xxxxxxxxxxx effects xxx the xxxx Trust xxxxxxxx is xxxx likely xx challenge xxx decision xxx widget xxxxxxxx in xxxxxxx is x monopoly xxxxxxxxxx by xxxxxx Corp xxx demand xxxxx for xxx local xxxxxx is xxxxx by x W xxxxx W xxxxxxxxxx the xxxxxx of xxxxxxx sold xxx period xxx total xxxx function xxxxxxxxx opportunity xx implicit xxxxx for xxxxxx Corp xx TC x W x Assuming xxx industry xx unregulated xxxx are xxx equilibrium xxxxx and xxxxxx and xxxxxxxx profits xxxxxx by xxxxxx Corp x If xxx industry xx regulated xxx the xxxxxxxxxx authority xxxxxx Widget xxxx to xxxx only x normal xxxxxx on xxxxxxxxxx which xx included xx its xxxx function xxxx is xxx resulting xxxxxxxxxxx price xxx quantity x What xxxxxxx to xxxxxxxx surplus xxxx happens x o xxx economic xxxxxxx earned xx Widget xxxx Ans x If xx assume x is xxx quantity xxxx then xxxxxxx W- x Thus xx - x and xx WThus xxx profit xxxxxxxxxxxx quantity xxxxx be xx MR xx W x W x or x P x or xxxx the xxxxxxxxxxx quantity xxxxx be xxxxx at x price xx At xxxx price xxx profit xxxxx be x or x or x The xxxxxxxxxx should xxxx the xxxxxxxx profit xxxx TR-TC xx W- x W x or x - x - x - xx Or x and x This xx the xxxxxxxxxxx price xxx quantity xxxxx regulation x The xxxxxxxx surplus xxxxxxxxx and xxx economic xxxxxxx are xxxxx regulation xxxxxxx the xxxxxxx ways xxxxxxxxxxx can xxxxxx externalities xxxx as xxxxx from x local xxxxxxx or x barking xxx or xxxxxxxx of xxxxxxxxxx office xxxxx or xx industrial xxxxxxxx in x residential xxxx How xxxx the xxxxxxxxxx of xxxxxxxx rights xxxxxx the xxxxxxx Under xxxx circumstances xxxxx a xxxxxxxx optimal xxxxxxxx arise xxxxxxx any xxxxxxxxxx intervention xxxxx what xxxxxxxxxxxxx would xxxxxxxxxx intervention xxxxxx move xxx outcome xxxxxx to x socially xxxxxxx solution xxx ways xxxx which xxx government xxx remove xxxxxxxxxxxxx are xxxxxxxxx The xxxxxxxxxx may xxxxxx a xxx on xxx entity xxxxxxxx the xxxxxxxxxxx The xxx will xxxxx the xxxxxxx cost xx the xxxxxx cost xxxxx will xxxxxx the xxxxxxxx effects xx the xxxxxxxxxxx Imposing xxxx and xxxxxxxxxxxx The xxxxxxxxxx may xxxxxx a xxx to xxxxxxxx any xxxxxx which xxx be xxxxxxxx in xxxxxxxx the xxxxxxxxxxx Tradable xxxxxxxxxxx In xxxx the xxxxxxxxxx imposes x limit xx to xxxxx a xxxxxxx transaction xxx cause xxxxxxxx externalities xxx assignment xx property xxxxxx help xx assigning x value xx the xxxxxxxxxxx in xxxxx to xxxxx of xxx externality xxx example xx the xxxxx mill xxxx the xxxxxx then xxx individuals xxxx live xxxxxx the xxxxxxxx be xxxxxxx to xxx the xxxxx mill xxx to xxxxxxxxxxx to xxx cost xxxx they xxx incurring xxxx health xxxx reduced xxxxxxxxx appeal xx the xxx etc xxxx amount xxxx they xxx willing xx pay xxxxxxx an xxxxxxxxxxx cost xxx the xxxxx mill xx they xxxxxxx Thus xxxx will xxx production xx the xxxxxxx level xx the xxxxx hand xx the xxxxxx own xxx air xxxx the xxxxx mill xxxxx have xx pay xxxx that xxxx amount xxx the xxxxx to xxxxxxx Thus xxx negative xxxxxxxxxxx is xxxxxxxx added xx the xxxxx mill x marginal xxxx This xxx help xx solving xxx problem xxxxxxx government xxxxxxxxxxxx If xxxxxx of xxx party xxxxx creating xxx negative xxxxxxxxxxx or xxx one xxxxxxxx is xxx ready xx come xxxx to x mutual xxxxxxxxx then xxx government xxx to xxxxxxxxxMore Articles From Economics
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