Reference no: EM13143552

Q1. The following graph shows the cost curves for a perfectly competitive firm. Identify the shutdown point, the breakeven point, and the firm's short-run supply curve.

Q2.  The following facts characterize the furniture industry in the United States.

a.        The industry has been very fragmented so that few companies have the financial backing to make heavy investments in new technology and equipment.

b.        In 1998, only three U.S. furniture manufacturers had annual sales exceeding $1 billion.  These firms accounted for only 20% of the market share, with the remainder split among 1000 other manufacturers.

c.        Capital spending at one manufacturer, Furniture Brands, was only 2.2% of sales compared with 6.6% at Ford Motor company.  Outdated, labor incentive production techniques are still being used by many firms.

d.        Furniture manufacturing involves a huge number of options to satisfy consumer preferences, but this extensive set of choices slows production and raises costs.

e.        Small competitors can enter the industry because large manufacturers have not built up any overwhelming advantage in efficiency.

f.         The American Furniture Manufacturers Association has prepared public relations campaign to "encourage consumers to part with more of their disposable income on furniture."

g.        In the fall of 2003, a group of 28 U.S furniture manufacturers as the U.S government to impose antidumping trade duties on Chinese-made bed room furniture, alleging unfair pricing.

h.        The globalization of the furniture industry since the 1980s has resulted from technological innovations, governmental implementation of economic development strategies and regulatory regimes that favor global investment and trade, and the emergence of furniture manufacturers and retailers with a capacity to develop global production and distribution networks using Chinese subcontractors has accelerated globalizing in recent years.

Discuss how these facts are consistent with the model of perfect competition.

Q3.  Given the demand curve in the following graph, find (and label) the monopolist's profit-maximizing output and price.

Q4.  The following discussion describes a patent dispute in the pharmaceutical industry:

The following discussion describes a patent dispute in the pharmaceutical industry:

State and federal authorities are examining whether Abbott Laboratories violated antitrust laws in its efforts to prevent an Israeli company from successfully selling a generic version of its cholesterol medicine, TriCor.  Drug companies usually have three to 10 years of exclusive patent rights remaining when their products hit the market.  However, they can often find ways to extend their monopolies by patenting slight improvements to those drugs.  Twenty-five states and the District of Columbia filed suit in federal court alleging that in addition to filing new patents on questionable improvements to TriCor, Abbott engaged in a practice known as "product switching."  This involves retiring an existing drug and replacing it with a modified version that is marketed as "new and improved," preventing pharmacists from substituting a generic for the branded drug when they fill prescriptions for it.  Although this strategy is not illegal, the plaintiffs argue that Abbott employed it and other strategies solely to preserve its monopoly on TriCor.

One year after TriCor hit the market in 1999, Israeli Teva Pharmaceuticals Industries applied to the Food and Drug Administration's (FDA) to market a similar version of the drug.  Abbott sued Teva for patent infringement, which triggered a 30-month waiting period during which the generic drug could not be launched while patent challenges were being debated.  During the waiting period, Abbott altered its product, lowering the dosage and changing it to a tablet from a capsule.  It filed for a patent on this modified form of TriCor, bought back the remaining supplies of the capsules and replaced them with the lower-dose tablet.  When the 30 months had elapsed, Teva could no longer launch its generic drug because it was no longer strictly bioequivalent to the modified TriCor. 

This process was repeated again from 2002 Ti 2005.  Teva filed a counter-suit alleging anti-trust law violation.  The company argues that Abbott's strategy would allow pharmaceutical companies to protect their monopolies indefinitely.  Abbott said it has the right to protect its innovations and denies switching formulations for the sole purpose of warding off generic competition.  It said the two switches brought improvements for patients.  Teva argues that the drug's active ingredient stayed the same and that the supposed improvements were smoke screens.