Chapter 27: Q.a - For Critical Thinking (page 602)
Who pays for the many hours of work that numerous officials of agencies such as the Consumer Product Safety Commission devote to establishing new regulations?
The government pays for the numerous officials of agencies such as the Consumer Product Safety Commission
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Do you think that the regulation described in Problem 27-6 is more likely an example of the capture hypothesis or the share-the-gains, share-the-pains theory? Why?
Why do you suppose that assigning market shares, regions, or customers and exchanging sales information are the most common means of coordinating collusion?
Why do you suppose that nearly all of the world's antitrust authorities agree that collusive conspiracies to restrain trade and fix prices are illegal?
An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.
Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.
Distinguish between economic regulation and social regulation
The table below depicts the cost and demand structure a natural monopoly faces.
a. Calculate total revenues, marginal revenue, and marginal cost at each output level. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? What will be the amount of monopoly profit? [Hint: Recall that marginal revenue equals the change in total revenues from each additional unit and that marginal cost equals the change in total costs from each additional unit.]
b. If regulators require the firm to practice marginal cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework? [Hint: Recall that average total cost equals total cost divided by quantity and that profits equal .
c. If regulators require the firm to practice average cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework?
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