Exam 14: A Managers Guide to Government in the Marketplace

Acme Water is a privately owned company that is the sole supplier of water to a rural town in Pennsylvania. The owner of the firm has provided the manager of the company an incentive to maximize the firm's profits, and the manager is currently selling 100,000 gallons of water per week at a price of $.05 per gallon. The marginal cost of water is zero, but the firm's average cost of this level of output is $.01 per gallon. a. Determine Acme Water's profits. b. Now suppose that the local government imposes a price ceiling on water at a price of $.01 per gallon. Will the firm earn economic profits of zero as a result of this price ceiling? Explain. c. Does the price ceiling of $.01 per gallon result in a shortage of water in Acme's service area?

The domestic demand and supply for sugar are Q^d = 700 - 2P and Q^SD = 100 + 4P. The foreign supply is Q^SF = 150 + 3P. Suppose an import quota of 100 is imposed in the domestic market. How many units of sugar will domestic producers supply after the quota is imposed?

Which of the following factors reduces the need for government involvement in the marketplace?

Nonexclusionary, as it relates to public goods, means that:

Under the Lanham Act, in concert with the Clayton Act:

Consider the monopoly in the figure below with price regulated at $20 per unit. Consumer surplus at the regulated price is:

If the government imposes a price ceiling below the monopolist's average cost curve, then in the long run the regulation makes:

Suppose a monopoly faces an inverse demand curve of P = 300 - 10Q and has constant marginal cost of 20. 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?

Which of the following is true concerning negative externalities?

Which of the following is NOT a result of certification of skills?

Suppose a monopoly faces an inverse demand curve of P = 100 - 2Q and has constant marginal cost of 6Q. 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 domestic demand and supply for sugar are Q^d = 700 - 2P and Q^SD = 100 + 4P. The foreign supply is Q^SF = 150 + 3P. What is the domestic market price of sugar?

An excise tariff imposed on foreign competitors will:

Nonrivalry, as it relates to public goods, means that:

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. Suppose an import quota of 5,000 is imposed in the domestic market. How many units of sugar will domestic producers supply after the quota is imposed?

Consider the monopoly in the figure below with price regulated at $2 per unit. Monopoly profits at the regulated price (assuming the presence of fixed costs) are:

You are the CEO of a firm with an industry HHI equal to 1,000. Your firm currently controls 20 percent of the market. The board of trustees wants you to consider merging with a firm that controls 10 percent of the market. Should you be concerned about antitrust proceedings? Explain.

A negative externality:

As additional consumers obtain the benefits of a pure public good, such as national defense, the benefits to the existing consumers will:

How much would consumers in the figure below spend to persuade politicians to regulate the monopoly's price to marginal (or average) cost?