Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 14, Problem 4DQ
To determine
The difference between predatory and non-predatory pricing.
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The New York Times has stated that Mylan, the company that makes the now infamous Epipen, has become “the poster boy for out of control drug prices.” Why did this Pittsburgh-based company raise prices so much that Americans pay three times as much as Canadians for the same drug? Do you think patents are good for society?
What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?
What are the objectives of regulators? Under
what conditions is regulation most likely to raise
welfare?
Chapter 14 Solutions
Economics: Principles & Policy
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Similar questions
- Review the graph at right for a nonlinear price discriminating monopolist relying on two prices, $80 and $60. How much is the consumer surplus? $ (round your answer to the nearest penny) (round your answer to the nearest penny) (round your answer to the nearest penny) How much is the producer surplus? $ S How much is the deadweight loss? $ S Total welfare is $ (round your answer to the nearest penny) S Boud 8 100- 90- 80- 70- 60- 50- 40- 30- 20+ 10- 04 0 MC D 10 20 30 40 50 60 70 80 90 100 Quantity Qarrow_forwardSuppose CLP Holdings Limited is a natural monopolist with constant marginal cost. Draw a diagram to indicate the profit-maximizing level of output, the profit-maximizing price, and the size of the profit. If the government wants to increase the market efficiency through price regulation, would you suggest the government setting the price equal to the firm’s marginal cost or its average total cost? Explain in detail with the diagram.arrow_forwardhttps://www.ft.com/content/e92dbf94-d9a2-11e9-8f9b-77216ebe1f17 why do drug makers sometimes have monopoly power? the article quotes economics professor William Lazonick as saying, “Either the purpose of a drug company and the people managing it is to take the profits and reinvest them. . . to do drug development. That I have no problem with. Or it is to distribute money to shareholders, which is in fact what they are doing.” How does Dr. Lazonick’s description of what drug companies are doing differently from the stated goals and actual practices of firms in other industries? Describe the problem an oligopoly has with regards to the prisoner’s dilemma and the Nash equilibrium. How does the situation in question 3 change with larger numbers of firms in the oligopoly or with a greater number of times the “decision game” is played? Why do firms advertise? How does price discrimination increase social welfare?arrow_forward
- The figure to the right shows the market demand for electricity and the average total cost and marginal cost of producing electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators want to achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places) Now suppose instead that government regulators want to eat the lowest price such that the utility company will not suffer a loss so that it will continue to produce in the long run. If so, then i government regulators will set a price of $ per kilowatt hour. Price and cost (dollars per kilowatt hour) 0.52 048 044- 040- 0.36 0324 0.26 0.24 0.20 0.16 0.12 0.06 004 0.00+ ATC MC 4 8 12 16 20 24 28 32 36 40 44 48 Quantity of kilowatt hours (in billions)arrow_forwardGenentech owns a patent on tissue plasminogen activator (TPA), which is an enzyme that helps the body break down blood clots. TPA is particularly valuable to cardiac patients, since it often allows heart problems to be treated with medication rather than surgery. Recently, however, firms in the medical industry have come under fire by some members of Congress and the press for charging high prices and earning monopoly profits. a. If the government stripped Genentech and other pharmaceutical firms of their patents, do you think cardiac patients would benefit? Why?arrow_forwardReview the graph at right for a nonlinear price discriminating monopolist relying on two prices, $80 and $60. The firm charges a price of $80 for the first 20 units, then a price of $60 for the next 20 units. How much is the total consumer surplus in the market with this form of price discrimination? $(round your answer to the nearest penny) How much is the total producer surplus in the market with this form of price discrimination? $(round your answer to the nearest penny) Price 1 100 90 80 70- 60 50 40 30 20 10- 0 10 20 30 40 50 60 70 80 Quantity MC D 90 100arrow_forward
- Is the insulin market considered as a monopoly? How and Why?arrow_forwardHow does monopoly effect the pharmaceutical industry?arrow_forwardDefine first, second, and third degree price discrimination and give one example for each. Which of these types of price discrimination would the monopolist prefer? Why?arrow_forward
- In the following table, which contains the demand schedule for a monopolist, enter the total revenue (TR) and marginal revenue (MR) for each price. For each price–quantity combination (that is, table row), indicate whether demand is elastic, unitary elastic, or inelastic at that point on the demand curve. Hint: Do not calculate the price elasticity of demand mathematically. Instead, use what you know about elasticity along different segments of a linear demand curve to determine the elasticity of each price–quantity combination.arrow_forwardA profit-maximizing monopolist faces demand p, = 150 – q. . And suppose its marginal cost is q, what price should it charge if it charges one price for all consumers? What will be DWL, consumer surplus and producer surplus in that case? What prices should it charge to high demand and low demand consumers if it price discriminates according to quantity ? (Suppose there are two groups). What will be DWL, consumer surplus and producer surplus in that case?arrow_forwardThe following graph gives the demand (D) curve for 5G LTE services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local 5G LTE company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per gigabyte of data) 20 18 16 14 12 10 4 2 0 0 1 2 4 True MR 3 5 7 QUANTITY (Gigabytes of data) O False 6 8 ATC MC 9 10 D + Monopoly Outcome Which of the following statements are true about this natural monopoly? Check all that apply. ? The 5G LTE company must own a scarce resource. The 5G LTE company is experiencing diseconomies of scale. The 5G LTE company is experiencing economies of scale. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. True or False: Without government…arrow_forward
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