Reference no: EM131071654
Question 1.
The four-firm concentration ratios for industries X and Y are 68 percent and 79 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 1,800 and 2,900. The Dansby-Willig performance index for industry X is 0.65, while that for industry Y is 0.78. Based on this information, which would lead to the greatest increase in social welfare: A slight increase in industry X's output, or a slight increase in industry Y's output?
A slight increase in industry Y's output.
A slight increase in industry X's output.
Question 2.
HomeGrown is a small restaurant that specializes in serving local fruits, vegetables and meats. The company has chosen to enter into a long-term relationship with Family Farms, a local farming operation. The two parties have decided to enter into a long-term contract where Family Farms will supply produce to HomeGrown at specified prices and volume each year. Before signing a contract, HomeGrown is trying to decide how long the contract should be. It estimates that each year the contract covers saves the restaurant $1,000 in bargaining and opportunism costs. However, each year the contract covers also requires more legal fees. HomeGrown estimates that the number of hours it will need from lawyers, L, has a quadratic relationship with the number of years on the contract so that L = Y2 where Y is the number of years for the contract. If HomeGrown's lawyers charge $150 per hour, how long should the contract be?
Instruction: Round your answer to 1 decimal place.
Question 3.
Describe how a manager who derives satisfaction from both income and shirking allocates a 10-hour day between these activities when paid an annual, fixed salary of $95,000.
Time spent working: _____hours
Time spent shirking: _____hours
When this same manager is given an annual, fixed salary of $95,000 and 3 percent of the firm's profits-amounting to a total salary of $125,000 per year-the manager chooses to work 8 hours and shirks for 2 hours. Given this information, which of the compensation schemes does the manager prefer?
The manager is indifferent between the two payment schemes.
The scheme with only a fixed payment of $95,000.
The scheme with fixed payment of $95,000 and a percentage of profits.
Question 4.
Suppose the marginal cost of writing a contract of length L is MC(L) = 10 + 4L. Find the optimal contract length when the marginal benefit of writing a contract is:
Instruction: Round your answers to 2 decimal places.
a. MB(L) = 120.
b. MB(L) = 160.
c. What happens to the optimal contract length when the marginal benefit of writing a contract increases?
Question 5.
A manager hires labor and rents capital equipment in a very competitive market. Currently the wage rate is $15 per hour and capital is rented at $8 per hour. If the marginal product of labor is 45 units of output per hour and the marginal product of capital is 65 units of output per hour, should the firm increase, decrease, or leave unchanged the amount of capital used in its production process?
The firm should decrease capital.
The firm should leave capital unchanged.
The firm should increase capital.
Question 6.
Ten firms compete in a market to sell product X. The total sales of all firms selling the product are $2,500,000. Ranking the firms' sales from highest to lowest, we find the top four firms' sales to be $400,000, $325,000, $245,000, and $185,000, respectively. Calculate the four-firm concentration ratio in the market for product X.
Instruction: Round your answer to 2 decimal places.
Question 7.
An economist estimated that the cost function of a single-product firm is:
C(Q) = 110 + 35Q + 30Q2 + 5Q3.
Based on this information, determine the following:
a. The fixed cost of producing 10 units of output.
b. The variable cost of producing 10 units of output.
c. The total cost of producing 10 units of output.
d. The average fixed cost of producing 10 units of output.
e. The average variable cost of producing 10 units of output.
Question 8.
(a) Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 2,900. Case's share of that market was 14 percent, while Fiat comprised just 9 percent of the market. If approved, by how much would the postmergerHerfindahl-Hirschman index increase?
(b) Based only on this information, is the Justice Department likely to challenge the merger according to the Horizontal Merger Guidelines?
No.
Yes.
Possibly - but other factors will be considered.
Question 9. Suppose the own price elasticity of market demand for retail gasoline is -0.9, the Rothschild index is 0.7, and a typical gasoline retailer enjoys sales of $1,450,000 annually. What is the price elasticity of demand for a representative gasoline retailer's product?
Instruction: Round your answer to 2 decimal places.
Question 10.
A firm produces output according to a production function:
Q = F(K,L) = min {5K,5L}.
a. How much output is produced when K = 2 and L = 3?
b. If the wage rate is $60 per hour and the rental rate on capital is $35 per hour, what is the cost-minimizing input mix for producing 10 units of output?
Question 11.
An industry consists of three firms with sales of $230,000, $760,000, and $200,000.
a. Calculate the Herfindahl-Hirschman index (HHI).
Instruction: Round to the nearest integer.
b. Calculate the four-firm concentration ratio (C4).
c. Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, is the Department of Justice likely to attempt to block a horizontal merger between two firms with sales of $230,000 and $200,000?
Question 12.
A firm has $2,200,000 in sales, a Lerner index of 0.58, and a marginal cost of $45, and competes against 800 other firms in its relevant market.
Instruction: Round your answers to 2 decimal places.
a. What price does this firm charge its customers?
b. By what factor does this firm mark up its price over marginal cost?
Question 13.
Suppose the marginal benefit of writing a contract is $70, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is:
Instruction: Round your answers to 2 decimal places.
a. MC(L) = 55 + 3L.
b. MC(L) = 15 + 4L.
c. What happens to the optimal contract length when the marginal cost of writing a contract declines?
Question 14.
Andrew has decided to open an online store that sells home and garden products. After searching around, he chooses the software company Initech to provide the software for his website since their product required the least amount of specialized investments for him to use it. They agreed upon price of $7,000. To use Initech's software, Andrew makes $3,000 in sunk capital investments and spends 50 hours learning how to use Initech's software, which is very different from other software packages. Both Andrew and Initech view Andrew's time as worth $24 per hour and Initech is fully aware of the investments Andrew must make to use their product. After Andrew's investments were made, Initech came to Andrew and asked for more money. How much do you think they asked for?