Unit 7 homework

1)
Describe the three types of government
regulation of business. Which two are
discussed at length in this chapter?

2)
Define market power, and then discuss the
rationale for government regulation of firms with market power.

3)
The following graph represents a natural
monopoly

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a.
Why is this firm considered a natural monopoly?

b.
If the firm is unregulated, what price and
output would maximize its profit? What
would be its profit or loss?

c.
If a regulatory commission establishes a price
with the goals of achieving allocative efficiency, what would be the price and
output? What would be the firm’s profit
or loss?

d.
If a regulatory commission establishes a price
with the goal of allowing the firm a normal profit, what would be the price and
output? What would be the firm’s profit
or loss?

e.
Which one of the prices in parts (b), (c), and
(d) maximizes consumer surplus? What
problem, if any, occurs at this price?

4)
Why do producers have more interest in
government regulations than consumers do?

a.
Compare and contrast the public-interest and
special-interest theories of economic regulation. What is the capture theory of regulation?

b.
Which theory of regulation explains why the
massive fraud of Bernie Madoff went undetected for years?

5)
Identify the type of anticompetitive behavior
illustrated by each of the following:

a.
A university requires buyers of season tickets
for its basketball games to buy season tickets for its football games as well

b.
Dairies that bid on contracts to supply milk to
school districts collude to increase what they charge.

c.
The same individual serves on the board of
directors of General Motors and Ford

d.
A large retailer sells merchandise below cost in
certain regions to drive competitors out of business.

e.
A producer of soft drinks sells to a retailer
only if the retailer agrees not to buy from the producer’s major competitor.

6)
Identify the four U.S. merger waves and explain
the driving force behind each.

7) Calculate
the Herfindahl-Hirschman index (HH) for each of the following industries. Which industry is the most concentrated?

a. An
industry with five firms that have the following market shares: 50 percent, 30 percent, 10 percent, 5
percent, and 5 percent.

b. An
industry with five firms that have the following market shares: 60 percent, 20 percent, 10 percent, 5
percent, and 5 percent.

c. An industry with five firms, each of which has a 20 percent
market share

8)
William
Shepherd’s research of U.S. industries showed a clear trend in the
competitiveness of the U.S. economy between 1958 and 2000. Is the economy growing more or less
competitive, and how did Shepherd explain this trend?

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