four market structures of pure
competition, pure monopoly, monopolistic competition, and oligopoly
1. The manager of American Box
Company conducts a study and notes his 10 workers produce approximately 2,000
boxes per week. He assumes that if he can employ 20 workers, the number of
boxes will increase to 4,000 per week, and if he can employ 30 workers, the
number of boxes per week will reach 6,000. Explain why the manager’s assumption
is correct or incorrect.
2. ElectraCorp has been earning
zero economic profit for the past six months. Would it be wise for ElectraCorp
to cease operations? Why or why not?
3. What is economic profit?
4. The best price and cost
scenario occurs when the price of the company’s product equals marginal cost.
Explain why this is so.
5. Why wouldn’t it be better for
the price of a product to exceed its marginal cost?
6. Describe the four market
structures of pure competition, pure monopoly, monopolistic competition, and
oligopoly.
7. Under the monopolistic
competition model where the vast majority of firms operate, what role is played
by product differentiation?
8. Why are entrepreneurs the most
important people in the successful operation of many firms?
9. Describe the Coase theorem and
its approach to solving the externality problem.
10. Some people believe that the
minimum wage should be raised to $10.00 per hour “to help poor people
escape from poverty.” How would raising the minimum wage to $10.00 per
hour actually harm poor people, businesses, and consumers in general?
11. As manager of Centrix
Diagnostics Services, you receive exciting news from the R & D division
that a new technological breakthrough (that will very soon be discovered by all
other diagnostics service companies) will cut your firm’s costs of providing
services by 15%. Should you recommend the current price for the services be
maintained after implementing the new technology in the hopes of earning a
substantial profit, or will it be wiser to lower the price for the services?
Explain.
12. How do tariffs imposed by the
U.S. government on foreign-made steel impact the domestic price of U.S.-made
steel?
13. Who gains and who loses from
a tariff?
14. How will a quota imposed by
the U.S. government on foreign-made machinery impact the domestic price of the
same kind of machinery made by U.S. companies?
15. Who gains and who loses from
a quota?
16. “We need all kinds of
trade restrictions against foreign competition to protect American jobs!”
Explain why this argument is seriously flawed.
