1. In the movie "The Day of the Jackal" (the 1973 version, not the remake with Bruce Willis), an assassin who was looking to perform a killing that also would signal his "retirement" as a contract killer hires someone who lived in Italy to create false identification documents (i.e. passports, etc.). He and the document creator agreed that after the assassin had paid for the fake documents, he also would receive all photo negatives and any other relevant materials pertaining to his identity. However, when the assassin showed up to pay for the documents, the professional forger said that he had hidden the negatives, but would give them back for an extra fee – after assuring the assassin that the documents were hidden in a safe place. (Unfortunately for the document maker, the assassin kills him, instead, and hides the body in a trunk located in an out-of-the-way apartment.)
Was the document maker seeking an economic rent, a pure economic rent, or a quasi-rent? Explain. Economically speaking, why would the assassin kill the document maker instead of paying the fee, even though this document maker was reputed to be the best in the world at creating forgeries? (This is not an "honor" killing or something done out of rage or revenge.)
2. As we know, Apple Computer did not invent the "mouse," which was one of the big features on the Macintosh computer that debuted in 1984. (Yes, I saw the famous Mac add that showed only once -- during the 1984 Super Bowl.) The original PARC GUI used a mouse and it was invented by Xerox in the mid-1970s. As we also know, Xerox did not do much with the computer and Apple (and Steve Jobs) ultimately took the idea for its own. (No, Jobs did not "steal" the device from Xerox.)
Some people have said that if Xerox had recognized the potential of its machine, the history of that company might have been much different. Given what we have studied about the firm and about entrepreneurship, is this observation accurate? Why or why not?
3. What is the difference between a barrier to entry and what Alchian & Allen call "filters"? As you know, academic accreditation agencies like AACSB (which is the accrediting agency for the FSU College of Business and our own MBA program) requires that professors who teach in the MBA program (although they allow a few adjuncts) not only have terminal degrees (doctorates) but also have a record of publishing papers in peer-reviewed journals of their disciplines.
Would you call the AACSB requirements "barriers to entry" or "filters"? Explain your answer.
4. When Microsoft first announced that it would include a "free" version of its new web browser, Explorer, in its version of Windows 95, a number of people in the tech "community" objected because the Explorer browser was seen as being technologically inferior to the Netscape browser, which cost $85 and had to be purchased separately from the computer. Netscape argued that Microsoft was breaking the law because it was using its "monopoly powers" to offer users a "free" browser, should they choose it. (Users who chose to do so could purchase and download the Netscape browser without any interference from Windows 95.)
However, as noted above, many people cried foul because they perceived that the Explorer browser was inferior. Using economic analysis that we have covered in this course, answer the following question: Assuming that the critics were correct about the inferiority of the Explorer browser, could one justify, economically speaking, choosing the Explorer browser over Netscape? Defend your answer.
5. Before the 2012 election, Mitt Romney headed a private equity firm which would purchase ailing firms and then either make them more profitable and then sell them at a profit or just liquidate the assets of the company directly and not attempt at all to make the newly-purchased company financially stronger. Political opponents accused him of "putting people out of work" and essentially taking a valuable firm and destroying it, and making a profit from that destruction.
Were his opponents correct? Is it possible to purchase a healthy firm, make it unprofitable, lay off everyone, sell the assets, and still make a profit? Why or why not?
(This question does not deal with whether or not Bain Capital and other private equity firms always make good decisions with their acquisitions, but rather deals with the simple question of: Is it possible to purchase a healthy company, run it into the ground, and then sell off the assets and STILL make a hefty profit -- or any profit at all? This is an economic question, not a political one.)
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Clearly the document maker was seeking an quasi rent as it is an temporary phenomenon. Quasi rent is a short run opportunity in which there would be no business again if the assassin had paid for the fake documents. The document maker was one of the best professional forgers which make his supply of services relatively inelastic. However instead of providing the documents, the document maker asked for an extra fee for giving back the negatives which would surely be a ransom amount which is surely a quasi-rent sought by the document maker. Thus instead of paying the fee, (which would be a ransom amount for the negatives), the assassin killed the document maker....
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