Download Group Assignment 4 Due: Monday December 6th before class. 1

Group Assignment 4
Due: Monday December 6th before class.
1. State whether the following characteristics represent monopolistic competition, oligopoly, or both.
a.
Many sellers
b.
Mutually interdependent decisions
c.
Multiple dimensions to competition
d.
Differentiated products
e.
Few sellers
f.
Easy long-run entry and exit
2. Six movie theater chains are present in New York City. They have the following market shares:
Firm
Market Share
A
40
B
25
C
15
D
10
E
7
F
3
a. What is the four-firm concentration in this industry?
b. What is the Herfindahl index for this industry?
c. What would be the four-firm concentration ratio if Firms B and C decided to merge?
d. What would be the Herfindahl index if Firms B and C decided to merge?
3. Refer to the graph below that represents a monopolistically competitive firm to answer the following
questions.
a. Draw and label the marginal revenue (MR) curve.
b. What is the profit-maximizing level of output? What price will this firm charge?
c. Is this monopolistically competitive firm in long-run equilibrium? Why or why not?
4. You can return any item at Home Depot within 90 days of purchase, no questions asked. This policy
can hurt short-run profits. Does this mean Home Depot is not a profit-maximizer? Explain.
5. Suppose a nonsmoker sits down at a bar next to a smoker and is bothered by the smoke.
a. Which type of market failure is present here?
b. Draw the supply and demand for smoking. Illustrate how equilibrium quantity of cigarettes
smoked will differ from the socially optimal level. Will it be higher or lower? Be sure to
show and label the marginal social and private costs and benefits. Label the socially optimal
price and quantity as P1 and Q1 and the equilibrium as P0 and Q0.
c. Ronald Coase has argued that, in certain situations, private bargaining can solve the problems
of externalities. If the two people at the bar above bargain with one another, can they solve
this problem? Does your answer depend on whether the bar is a non-smoking establishment?
6. Does Shenandoah National Park fit the definition of a pure public good? Why or why not? Explain.
7. Draw the market (labor suppy and labor demand) for surgeons
a. Illustrate how a law that decreases the length of a surgical residency will change the labor
supply, wage, and quantity of surgeons. Would currently licensed surgeons be in favor of this
policy? Explain.
b. Nurse practitioners can easily substitute for medical doctors to provide many types of routine
health care. Do you expect the labor demand for primary care (general medicine) physicians or
for brain surgeons to be more elastic?
8. Suppose your friend suggests that, since per capita income in the U.S. is $46,000 per year,
we should take all of the income above this amount away from those who have more, and
give it all those who have less, so that everyone will have exactly $46,000 of income per
year. Will your friend’s suggestion work?
9. Is a 2% tax on food purchased in grocery stores progressive, regressive, or proportional?