1)Budweiser, Miller and Coors who together produce 809 of all beer consumed in the US, each
spend well over $500 million year on television advertising campaigns promoting their beer
brands Do you think these firms would welcome ongressional legislation which restricted the
amount that any one firm could spend on ach vertising to $10 million yearly and chereby allowed
them all to reduce their costs dramatically without fear of losing ground to each other? Explain your
2)"Most commercial fish species in nearly every ocean and sea are being rapidly depleted in what
marine biologists and other specialists warnis evolvinginto one of the worst ecological disasters
modern times. According to the United Nations the world's 15 million fishermen and 23 million
tons of fishing vessels represent twice as much fishing power as major stocksoffishcan Sustain."
Assume that ocean fishing resembles competitive market in the following ways there areno
significant barciers to entry and there are enough individual fishermen so that no one of them can
affect the market price of fish.
a) Explain why the conditions characteristic of competitive markets normally lead profit
maximizing firms to make choices about resource use that lead toan 'efficient" allocation of
b) Given your answerto (a) explain why unregulated competition has led to such serious
overallocation of resources to fishingi the commercial fishing industry?
3) Burning of fossil fuels emits carbon oxides into the atmosphere, which many scientists believe
increases the rate at which the earth's climate is warming Gasoline emissions from internal
combust ion engines also produce volatile organic compounds (voc's) which contribute to smog
creation when air inversion conditions are present. Which of the following two approaches to
reducing harmful auto emissions likely to be more efficient inachieving desired targetlevel of
emissions reduction from internal combustion engines? Explain your answer in paragraph or two.
a) legislate that within! years all automobile manufacturers must meet some sharply higher
minimum mileage standard averaged over all new vehicles sold I by the manufacturer than now
customary in the industry or face heavy fines
b) Raise the federal excise tax on gasoline sharply while reducing federal income tax rates such that
the total amount of tax revenues collected by the federal government from all US households
combined does not change, (Although the tax burden on individual households may shift)
4) Discuss the following excerpt from an article in the Wall Street Journal several years ago In your
use the concepts of: "price scrimination, 'elasticity and "barriers to entry to
information in the article to explain both the current success of Han ah's strategy; and the
prospects for continued success with the strategy
Miss She doesn' know it,but Linda Marar the subject of behavior: experiment thatcould
change odds gambling business The Memphis, Tenn retiree, her blouse bedecked with sequined
cards: dice has just received invitations to twonearby slot tournaments, along with vouchers for $200 all
"Harrah's savvy, says Ms Maranees, who admits thatoncein the casino door she bound to spend much
more than what Harrahl has givenher That exactly what the Las Vegas- based company banking on.
Over the past two years, larrah's has quietly conducted thousands
clinical style trials to determine what gets people gamble more. Based onits findings, Harrah's has
developed closely guardedr (strategies tailored individually tothe millions oflow rollers who make
up its bread and butter business
The results are impressive enough that other casino companies are copying some of Harrah's more
Atthe center Harrah's strategy is a former Harvard professor named Gary Loveman and vast
mathematical model much like ones that dines use tofill seats with the highest- paying fliers But this
one scores gamblers on how profit table they can beto Harrah's Richard Mirman the company senior vice
president who refined the model boasts that itis Harrah' "secret recipe" ona par with the famous
unrevealed formula Kentucky Fried Chicken. The model tells Harrah's marketers how appeal
gamblers such Ms Maranees, based on data tracking their previous behavior casinos. Spitting out
"behavior modification reports, Harrah comput suggest that Ms Maranees -an avid slot tournament
player will respond best cash offer while "ina Montgomery real estate agent from nearby Ixford,
Miss. better motivated by free hotel room As Ms Montgomery gambles downstairs she explains "my
husband stays in the room.
5) Testifying at price fixing trial involving Cargil Corp and the market for chicken growth
hormone, (in which Cargill is one of only three firms worldwide), an executive for Perdue said: "It's
an oligopoly When one (firm) changes price, they all doand usually within minutes.
Whyis not surprising to find that in an oligopoly with very few firms each of which sells a
basically undifferent lated product like chicken growth hormone, all the firms change prices
simultaneously, eveni there is no explicit price fixing?
6)Assume the graph below represents the market demand for patented prescription drug
together with the firm- level marginal cost and average cost functions for producing the drug
Assume these cost curves do not reflect R&D costs of developing this drug but only reflect
production costs of the drugonce the formula for itis known (Noter the diagram assumes that in
the output range from 250 400 thousand Mo -ATC $20). Rising MC at O> 400 .000 increases. ATC.)
A) Draw the marginal revenue function for this firm.
B) What sthe profit maximizing price for this firm?
C)On the graph show the area that represents the economic profit resulting from the firm's
exercise of monopoly power conferred by its patent Explain your answer briefly.
D) there were no patent to prevent entry, what would the 'efficient° level of output of this
E) What do you predict happen tothe structure of competitionand to the price this market
when the patent expires? (Hint use the concept of 'Minimum efficient scale 'of production in your
F) Why does the US government create monopoly power through the patent system given the net
efficiency loss from monopoly power? Explain in paragraph.
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1. The companies do not prefer legislation that curtails their actions. Limiting the amount to $10 million for advertising costs would make it harder for all three of beer producers to gain advantage through marketing. Budweiser, Miller and Coors all want to keep and increase their market share, not loose. If this legislation was to come through, it is likely that the barriers for entering this oligopolistic market would lower and other firm could take some of the business away from them.
This legislation would be preferable by the smaller companies on the market, because it restricts the larger ones. The firms that constitute the other 20% of market share will be...