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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?
In a particular competitive market, the sellers have private marginal cost (PMC) equal to 2.5 at every output level. The demand curve has the equation P = 52.5 − (5Q/2), where Q ≤ 21 is the quantity bought at price P ≤ 52.5. Explain how we can tell t..
The success of the apple ipad leads more firms to begin producing tablet computers. In the six months following the japanese earthquake and tsunami in 2011, production of automobiles in japan declined by 20 percent.
Discuss the new equilibrium price also quantity which result from these changes. Can you exhibit some of these changes graphically.
An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms to conclude his comparison analysis. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 20..
On the same day, the San Francisco Chronicle had an article with the headline "Sharp Drop in Bay Area Home Sales"
Corporate executives are pressured between conflicting interests of internal and external stakeholders. Provide a specific example of such a conflict. How can the conflict best be resolved?
In the long run the interest rate adjusts to adjusts to balance the supply and demand for loanable funds. In the short run, the interest rate adjusts to balance the supply and demand for money. Discuss.
What lump sum of money (P) must be deposited into a bank account at the present time so that $500/month (A) can be withdrawn for five years (N), with the first withdrawal scheduled 6 years from today at a nominal interest rate (r) of 9% per year? [Hi..
Affirmative action is one of the most controversial topics in employment law. How affirmative action is often presented in the media? How similar is that portrait to the one presented in Johnson v. Transportation Agency, Santa Clara County ? When are..
Advantages and disadvantages of a company using price discrimination in order to increase demand for its product or service.
Producer surplus is measured as the area
The rate of return on an investment in medical education
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