Identification: In a sentence or two, briefly define or otherwise demonstrate your knowledge of the following concepts. (3 points each)
1. Monopolistic Competition
2. Game Theory
3. Citizen Utility Board
4. Consumer Surplus
ESSAYS: Answer the following 3 questions. Answer all parts to each question, and answer each question as fully and carefully as you can. Use complete sentences and a logical economic thought process in each of your answers. These questions are not so much essay questions as they are a series of short answer questions. Thus, you may feel more comfortable answering each part separately rather than trying to create one single essay answer. (Question 1 = 17 points; question 2 = 18 points; question 3 = 18 points)
1. Many people believe that if monopolies are not regulated, they will charge the highest
price they possibly can. Thus, the thought continues, monopolies must be totally
regulated by the government.
Â· Is the goal of a purely monopolistic firm to charge the highest price? If so why? If not what is the goal of the purely monopolistic firm and how does it achieve this goal? (3 points)
Â· How is it possible for the pure monopolist to earn economic profits in the long run? Why do most firms in the monopolistically competitive market structure earn only normal profits or minimal economic profit in the long run? Is it possible for some firms in the monopolistically competitive market structure to earn some economic profit in the long run? Why or why not?
Â· Of the two methods of government regulation, the socially optimum pricing method provides the more ideal societal results. What ideal results does this pricing method provide and how does it achieve this goal? Why doesnâ€™t government frequently use this method of price regulation (i.e., what are the disadvantages of this pricing method)? (5 points)
Â· What pricing method does government usually employ when regulating pure monopolies? What results/improvement is the government trying to achieve under this approach? What are the advantages of this approach compared to the socially optimum price? What are the disadvantages of this approach compared to the socially optimum price? (5 points)
Â· Explain all of your answers fully and in terms of economics.
(Essay Questions 2 and 3 are on the following page)
2. There are more U.S. industries that operate in the monopolistically competitive market structure than
there are industries operating in either the pure competitive or pure monopoly.
Â· “Purely competitive and purely monopolistic industries will tend to be one-price industries. Monopolistic competition, however, is a multiprice industry.” Why are purely competitive industries and purely monopolistic industries one price industries and why are monopolistically competitive industries multiprice industries? Explain Fully. (5 points)
- Firms in oligopolistic industries also tend to sell their product (service) at the same price or in price clusters and tend to alter price infrequently. Using economic concepts, explain fully the reasons why oligopolistic firms tend to charge very similar prices and why they tend to change these prices fairly infrequently. (4 points)
Â· When oligopolistic firms do change price, all the firms in the industry tend to change their prices at the same time, or within days of one another. What types of agreements might allow oligopolistic firms to act in this collusive manner? Briefly explain each of these types of collusion. (3 points)
Â· Oligopolistic firms often develop via mergers or acquisitions. What are the three types of mergers or acquisitions that can occur? What is the difference between each of these types of mergers / acquisitions and what objective is (objectives are) firms trying to accomplish with each type of merger? (3 points)
Â· Which mergers are most often not allowed by the U.S. Justice Department? What measures does the Justice Department use in order to determine whether to allow a merger or not? (3 points)
Â· Explain all of your answers fully and in terms of economics.
3. Labor unions attempt to increase wages, maintain employment of members, and improve working conditions.
Â· What are the two basic types of labor unions, and what is the primary method (are the primary methods) used by each in its attempts to increase wages and employment? What are the results, advantages, and disadvantages of each approach? (5 points)
Â· What is a monopsonistic labor market? Are the wage and employment results in a monopsonistic labor market different than the wage and employment results in a competitive labor market? Why and how do the results differ? (5 points)
Â· The percentage of the U.S. labor force that belongs to labor unions has been declining for several decades? What are some of the reasons that labor unions are less prevalent today than they were forty years ago? Explain each briefly. (4 points)
Â· Labor unions frequently oppose free international trade and support trade restrictions. Why? What are the two major forms of international trade restriction, how do they differ from each other, and why do labor unions support these trade restrictions? (4 points)
Explain all of your answers fully using economic logic and theory.
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