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When is a producer's self-interest aligned with the social interest? This is one of the major questions addressed by economic theory. The previous chapter explored the behavior of profit – hungry producers in a perfectly competitive market. That model implied that greedy producers whose sole interest is profit will unwittingly and quite without benevolence, serve the social interest. The theory of monopoly behavior immediately follows the analysis of perfect competition in order to emphasize, by way of contrast, the destructive consequences of greed unbridled by the discipline of competition. Imagine a society swept by a debilitating, contagious disease that torments its victims for decades before finally killing them. This society's only pharmaceutical firm develops a drug that will cure the disease. The firm wants to maximize its profit. The marginal cost of producing the drug is low, $1.00 per dose.
What price is the firm likely to set?
Suppose some disease sufferers are wealthy and others are poor. All can afford $1.00 per dose but the poor cannot afford to pay more than $1.00 per dose. Is the monopoly operating in the social interest?
Imagine that many new firms enter the market by discovering and producing drugs that cure the same disease. How does this difference change the original situation?
What is the present worth of a $50,000 bond that has an interest of 20% per year payable quarterly? The bond matures in 5 years. The interest rate in the marketplace is 10% per year, compounded semiannually.
Since there is free mobility of resources, the perfect competitor can freely move in and our of a given perfectly competitive market. Economic profit involves explicit costs, while accounting profits involve implicit costs. The demand which a monopol..
Suppose the candle manufacturing industry is organized as a perfectly competitive market i.e. it consists of many firms with identical cost structures. A single firm's long-run average total cost function is “U” shaped and minimized at an output of q..
A firm has a production function represented by: q=L^(.75)K^(.25). Find a function for how much capital and labor a firm should hire to produce a given level of production in terms of the price of labor, w, and the price capital, r.
Suppose a government wishes to ensure that its citizens can afford adequate housing. Consider three ways of pursuing that goal. one method is pass a law requiring that rents be cut by one-fourth.
Consider an organization where you work, or one with which you are familiar. What is an issue within the organization that could benefit from applying ethical principles? How can these principles be used?
He claimed that he was not bound by the regulations because he never knew that they had been adopted. Is he bound by the regulaions?
Explain the short-run effects of eliminating rent control on apartments. In a competitive industry, with competitive supplies of labor and capital goods which have only normal gains, which factor obtains the "producer surplus"? What is the economic e..
Suppose that the U.S. noninstituional adult population is 230 million and the labor force participation rate is 67 percent. Illustrate what would be the size of the U.S. labor force.
What is the miracle of aggregation? What does the miracle of aggregation have to do with uninformed voters? What is systematic error? What is rational irrationality?
Wage rates tend to change with national rather than with industry productivity because:
What are price floors and price ceilings? How could a business maintain its level of profitability if forced to accept price ceilings? Use a business in your response. For example, a coffee shop could ... Please do not use a coffee shop in your examp..
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