MICROECONOMICS BU224 Seminar Eight

Agenda Course Issues and Questions Review of Chapter 15 Concepts Where are we going next?

Chapter 16 Questions: 1. Use the three conditions for monopolistic competition discussed in the chapter to decide which of the following firms are likely to be operating as monopolistic competitors. If they are not monopolistically competitive firms, are they monopolists, oligopolists, or perfectly competitive firms? A local band that plays for weddings, parties, and so on b. Minute Maid, a producer of individual-serving juice boxes c. Your local dry cleaner d. A farmer who produces soybeans

Chapter 16 Questions: 2. You are thinking of setting up a coffee shop. The market structure for coffee shops is monopolistic competition. There are three Starbucks shops, and two other coffee shops very much like Starbucks, in your town already. In order for you to have some degree of market power, you may want to differentiate your coffee shop. Thinking about the three different ways in which products can be differentiated, explain how you would decide whether you should copy Starbucks or whether you should sell coffee in a completely different way.

Chapter 15 Questions How can cartels sow the seeds of their own destruction? What kind of agreements may cartels work out to reduce competition among themselves? How are the professional sports leagues like a cartel? What happens to employment opportunities and wages paid in all non-competitive product markets? Why? Which market structure do most real world markets approximate?

Chapter 15 Questions 6. In a non-collusive oligopoly if one firm increased its price what would the other firms likely do? What about a price decrease? How is this related to a kinked demand curve?

Chapter 15 Questions 10. Suppose you are an economist working for the Antitrust Division of the Department of Justice. In each of the following cases you are given the task of determining whether the behavior warrants an antitrust investigation for possible illegal acts, or is just an example of undesirable, but not illegal, tacit collusion. Explain your reasoning. a. Two companies dominate the industry for industrial lasers. Several people sit on the boards of directors of both Companies.

Chapter 15 Questions b. Three banks dominate the market for banking in a given state. Their profits have been going up recently as they add new fees for customer transactions. Advertising among the banks is fierce, and new branches are springing up in many locations. c. The two oil companies that produce most of the petroleum for the western half of the United States have decided to forgo building their own pipelines and to share a common pipeline, the only means of transporting petroleum products to that market. d. The two major companies that dominate the market for herbal supplements have each created a subsidiary that sells the same product as the parent company in large quantities but with a generic name. e. The two largest credit card companies, Passport and OmniCard, have required all banks and retailers who accept their cards to agree to limit their use of rival credit cards.

Microeconomics Questions?