Managerial and Economics
Study Guide Seven: Industrial Organization
Chapter 10-13 (parts of each chapter)
March 27, 2014
Definitions:
Be able to define all terms identified in lecture.
Math questions. BE ABLE TO SHOW YOUR WORK!!!
Given the following industry market shares.
Firm
Share
Firm
Share
Firm
Share
Firm
Share
A
6
E
4
I
4
M
4
B
2
F
9
J
16
N
3
C
14
G
6
K
9
O
2
D
7
H
3
L
6
P
5
1.
Calculate the four firm concentration ratio for this industry.
2.
Calculate the eight firm concentration ratio for this industry
3.
Calculate the Herfindahl-Hirschman Index for this industry
4.
If D and K wished to merge, what would be the response of the Justice Department.
5.
If J and L wished to merge, what would be the response of the Justice Department.
Given
P = 300 – 2Q
TC = 6400 + 40Q + Q2
6.
If the industry own-price elasticity is –1.2, what is the Rothschild index for this industry.
Assume that the above numbers are for a representative, profit maximizing firm.
7.
What is the Lerner Index for this industry? Assume that the above numbers are for a
representative, profit maximizing firm.
8.
Given the research of Matthew Shapiro, what would you expect the own-price elasticity
for the industry to actually be, assuming that the above numbers are for a representative,
profit maximizing firm.
9.
PERFECT COMPETITION
P = $200
TC = $1200 + 20Q + 3Q2
a.
What is the profit maximizing level of output and profit in the short-run?
b.
In the long-run, what will be the level of output and price for this firm?
10.
MONOPOLY
Given
P = $775 – 0.5Q
TC = $3,200 + 25Q + 2Q2
What is the profit maximizing level of
a.
output?
b.
price?
c.
revenue?
d.
total cost?
e.
profit?
f.
own-price elasticity?
g.
What would be the level of price and output if this was a perfectly competitive industry?
11.
P = $800 – $2Q
i.
ii.
iii.
iv.
12.
TC = $1,000 + $200Q + $3Q2
the level of consumer surplus that exists if the industry was perfectly competitive vs
monopoly.
the amount of consumer surplus transferred to the monopoly as this industry moves
from perfect competition to monopoly.
the level of deadweight loss created by the industry if it was a monopoly.
the level of deadweight loss created if a 10% tax were placed on the competitive industry.
MONOPOLISTIC COMPETITION
Given
P = $1,150 – 0.5Q
TC = $2000 + 50Q + 5Q2
What is the short-run profit maximizing level of
a.
output?
b.
price?
c.
revenue?
d.
total cost?
e.
profit?
f.
own-price elasticity?
g.
In the long-run, what will be the profit maximizing price and output?
OPTIONAL (SEE BOOK)
h.
In the long-run, what would be the level of price and output if this firm operated in a
perfectly competitive industry? OPTIONAL (SEE BOOK)
Essay questions:
1.
Define
a.
Industrial Organization
b.
Market Structure
c.
The continuum of market structures
d.
Structure-Conduct-Performance paradigm
2.
What are the limitations of concentration ratios? How can these limitations be overcome with
the cross-price index and the Lerner Index?
3.
List the factors that determine the level of competition in an industry.
4.
Your manager argues that if the firm was a monopoly it could charge any price it wished.
Explain clearly why this is not true.
5.
Your manager argues that if the firm was a monopoly it will always make an economic profit.
Explain clearly why this is not true.
6.
Beyond deadweight loss, what are the other social costs of monopoly power.
7.
What are the cost and benefits of government taxation?
8.
You are asked to investigate how much social welfare could be improved in a variety of industries.
Explain how the Dansby-Willig performance index can be utilized to answer this question.
HINT: An illustration could help your answer.
9.
Explain how the setting of prices differs in the short-run and long-run for a firm in
a.
perfect competition.
b.
monopolistic competition.
c.
monopoly.
10.
Explain why a monopolistically competitive firm is not as efficient as a perfectly competitive
firm. Is this a social cost? Why or why not?