Problem #6, p. 221 in text. (You do not need to “derive” the Cournot equilibrium. Just solve for the values using the appropriate formulas.) Market demand: P = 400 – 2Q Unit cost production = 40 a. Firm’s quantity in equilibrium is : q1 = (a-c)/3b = (400-40)/(3*2)= 60 unit = q2 Firm’s revenue: P= 400 – 2 * (2*60) = $160 Firm’s profit = (60*160) – (60*40) = $7200 b. Monopoly output: MR=400-4q MC=40 MR=MC 400 – 4q = 40 then q=90 unit The reason that producing on half the monopoly output (90*1.5 = 135) a Nash equilibrium outcome is that it will exceed the market demand of Nash equilibrium ($160).
It also shows some other possible objectives for the firm. Sales revenue maximisation, for example, occurs when marginal revenue is equal to zero, as the next unit produced would carry a negative marginal revenue and hence reduce total revenue. The point where the volume of sales of the good are maximised subject to making at least normal profit is also shown (at the point where AR=AC). An Diagram Possible objectives of the firm I Profit maximisation may become
The project’s Internal Rate of Return (IRR): In this case, something truly wondrous IS happening at the discount rate at which the NPV line cuts the discount-rate axis: it is the discount rate at which the NPV of the project would be exactly equal to zero. In finance, this rate is called the project’s “internal rate of return” or IRR. It is a much-used concept in the real world of business. The IRR has its name because that rate is determined strictly by the cash flow of the project—is “internal” to it—and is not at all related to the firm’s cost of financing (k) at all. For normal projects in which one or several cash outflows are followed by a series of only cash inflows, we can offer you the following decision rule concerning the IRR of a project 2
When there is an x for y stock split then you should calculate returns as r_t=(〖x/y P〗_t-P_(t-1)+〖x/y D〗_t)/P_(t-1) For example, in the case of a 5 for 4 stock split x/y=1.25. 2. You do not have data on debt returns for the comparable companies. A common rule of thumb that is used in practice is to assume that the debt of these companies is risk free (has a beta of zero). This is a good assumption when debt represents a fairly small fraction of the firm’s value.
“Assess whether price discrimination is always undesirable” (25 marks) Price discrimination is the act of charging different consumers different prices for the same product, for reasons no associated with cost. First degree discrimination occurs when consumers pay the maximum price that they were willing and able to pay, second degree involves charging a different price for different quantities demanded and third degree occurs when charging different prices to different consumer groups. This statement suggests that price discrimination is always undesirable, however, although there are disadvantages to price discrimination, there are also some advantages that can be derived and therefore although price discrimination is undesirable to an extent, it is not always undesirable. A predominant reason why price discrimination is undesirable is because it can significantly reduce, or in extreme circumstances eliminate, consumer surplus, which in turn signifies a loss of welfare. This occurs with first degree price discrimination as consumers must pay the maximum that they were willing/able to pay, which may lower their real income.
The products or services sold are exactly the same, which is known as 'homogeneous' which are all the same price. Firms earn only normal profit (the bare minimum profit necessary to keep them in business). If firms started to earn more than that the absence of barriers to entry means that other firms will enter the market and drive the price level down until there are only normal profits to be made. Even the technology used is the same throughout all the companies. www.economist.com www.oligopolywatch.com Monopoly A definition of Monopoly is 'it exists when there is only one supplier of a product or service.'
Question 1 Currently, 9.30% is used as their hurdle rate and satisfied with the intellectual relevance of a hurdle rate as an expression of the opportunity cost of money by the managers. As a result the firm’s share prices are sluggish. Their price-to-earnings ratio is also below investor’s expectation in comparison to the company’s risk. The relationship between risk and return is important to take into consideration. The constant hurdle rate results in a flat line and doesn’t correlate risk with return.
One fallacy is that trade is a zero sum activity, if one trading party gains, the other must lost. 2. Imports reduce employment and act as a drag on the economy, while exports promote growth and employment. This fallacy stems from a failure to consider the link between imports and exports. 3.
If you choose 40 random employees from the corporation, the standard error would equal 6/Square root of 40 = .95 days. The 12 days in this department corresponds to (12-8.2)/.95 = 4 standard errors above the corporation average of 8.2. This is much higher than two or three standard errors, and it appears to be beyond chance variation. Chapter 9 Exercise 3 The p- value tells you how likely it would be to get results at least as extreme as this if there was no difference in the taste and only chance variation was operating. In this problem, p-value of 0.02 means that, if there is no difference in taste, then there is only 2% chance that 70% or more people would declare one drink better than the
One of the main ways monopolies abuse market power is by using their market share to price higher than what they would in a competitive industry. To me, this is the part where the case seems to break down. Microsoft had over 90% of the market share in the Intel-compatible PC market. With that type of pull, Microsoft’s economist estimated that Microsoft OS should’ve been selling for a monopoly price of $1,800. At the time though, Windows was selling their OS to OEM’s for quantity discounts that ended up at $40-60 dollars on average per OS sold.