Exam 14: A Managers Guide to Government in the Marketplace

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q. The inverse demand for coal is given by P = 180 - 4Q. If the government taxed output at $2 per unit, what would a competitive industry produce?

Suppose a monopoly faces an inverse demand curve of P = 6 - Q and has constant marginal cost of 2. If the government is considering legislation that would regulate price to the competitive level, what is the maximum amount the monopoly would spend on (legal) lobbying activities designed to thwart the regulation?

The unregulated monopoly in the figure below will earn profit of:

A firm has a constant marginal social cost of producing that equals $2Q. What is the socially efficient level of production for a firm facing an inverse demand P = 60 - 2Q?

Which of the following pieces of legislation is aimed at curbing the negative effects of externalities?

Which of the following raises domestic prices only when demand is relatively low?

Consider the monopoly in the figure below with price regulated at $20 per unit. Monopoly profits at the regulated price are:

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. What is the domestic market price of sugar?

An unregulated monopolist will likely:

When the government imposes an excise tax on foreign imports:

An excise tariff is:

The domestic demand and supply for sugar are Q^d = 40,000 - 200P and Q^SD = 10,000 + 300P. The foreign supply is Q^SF = 20,000 + 100P. What is the total supply of sugar in the domestic market?

Section 16(a) of the Securities and Exchange Act of 1934, as amended in 1990, requires that the officers, directors, and principal shareholders of companies disclose the extent of their ownership of equity securities of the company and any changes in the ownership. Section 16(b) permits companies to recover trading profits realized by such people arising from short-swing transactions in company securities. Do you think that, as a result of these laws, the government will be forced to spend more money on its auditing and enforcement efforts? Explain.

The gadget industry is comprised of 10 firms, each with a 10 percent market share. What is the Herfindahl-Hirschman index for the industry? Based on the U.S. Department of Justice Merger Guidelines described in the text, do you think the Justice Department would be likely to block a merger between two of the firms?

How much would the monopoly in the figure below spend to prevent its price being regulated to marginal (or average) cost?

Which cost measures the cost to society of producing a good?

Suppose the supply of wine by domestic firms is Q^SD = 5 + P and the supply of wine by foreign firms is Q^SF = 5 + P. The domestic demand for wine is given by Q^d = 40 - P. a. In the absence of a quota, what is the total supply of wine? b. What are the equilibrium price and quantity of wine? c. Suppose a quota of 5 units is imposed. What is the total supply of wine? d. Determine the equilibrium price and quantity of wine in the domestic market under the quota of 5 units. e. What is the loss in consumer surplus caused by the quota?

In the 1990s the Mobil Oil Corporation acquired the rights to increase pollution by 900 pounds of sulfur dioxide per day at its Torrance, California, refinery. These rights were purchased from South Gate, California, at a price of $3 million after the latter acquired them from General Motors. As a result of this change, Mobil increased its output of noxious vapors in Torrance, California, by 900 pounds per day. Do you think the environment was harmed as a result of the sale of these pollution rights? Explain.

The external marginal cost of producing coal is MC_external = 8Q while the internal marginal cost is MC _internal = 6Q. The inverse demand for coal is given by P = 180 - 4Q. How much output would a competitive industry produce?

You are the manager of a monopoly that faces an inverse demand curve and has constant average and marginal costs of $20 per unit. The government is considering legislation that would regulate your firm's price at $20 per unit. What is the maximum amount your firm should be willing to spend to lobby against the regulation?