Write A 75-100 Word Response To Each Of The Bulleted Questio

Write A 75 100 Word Response To Each Of The Bulleted Questions Below

Write a 75-100 word response to each of the bulleted questions below. Each question must have its own response and meet the minimum word count. 1. Each of 10 firms in a given industry has the costs given in the top table, below. The market demand schedule is given in the bottom table.

Quantity Total Cost Price Quantity Demanded A. What is the market equilibrium price and the price each firm gets for its product? B. What is the equilibrium market quantity and the quantity each firm produces? C. What profit is each firm making? D. Below what price will firms begin to exit the market? E. Before trying to answer the above, you should determine the market supply schedule. Start with a table marginal costs for the representative firm.

2. Large pharmaceutical firms use monopoly power granted by patents to sell drugs at prices that far exceed marginal costs. Evidence from countries without effective patent protections suggests that these drugs could sell for as little as 25 percent of their patent-protected prices. That difference costs U.S. consumers (including the government) nearly four times what pharmaceutical corporations spend on research each year.

a. How should we deal with these disturbing abuses of the patent system? b. Should the government buy back patents as your textbook discusses, or should it not issue them in the first place? c. Should patents be granted in some industries but not others? d. If so, how should we encourage research in areas with no patent protection?

3. Why is the assumption of no barriers to entry important for the existence of perfect competition?

4. How can the demand curve for the market be downward-sloping but the demand curve for a competitive firm be perfectly elastic?

5. Why does a monopolist produce less output than would perfectly competitive firms in the same industry?

6. Why is it difficult for firms in an industry to maintain a cartel?

7. Is the demand curve as perceived by an oligopolist likely to be more or less elastic for a price increase or a price decrease?

8. Why would most economists be concerned about third-party-payer systems in which the consumer and the payer are different?

9. Why doesn’t a manager have the same incentive to hold costs down as an owner does?

10. In what way does the threat of a corporate takeover place competitive pressures on a firm?

Paper For Above instruction

Due to the extensive nature of these questions, the following responses encapsulate key economic concepts and insights, each within 75-100 words, addressing specific issues ranging from market equilibrium to industry structures and incentives.

Question 1: Market Equilibrium and Firm Profits

To find the market equilibrium price and output, we need to identify where the market demand schedule intersects the supply schedule derived from the firms’ marginal costs. The equilibrium price is established where the quantity demanded equals the quantity supplied, which is also the price each firm receives in a perfect competition scenario. Each firm’s profit depends on whether the market price exceeds their average total cost. Firms will exit if the market price drops below their average variable cost, signaling an unsustainable situation.

Question 2: Pharmaceutical Monopoly Power and Patent Issues

Addressing abuses of monopoly power involves implementing regulations that cap prices or promote generic competition. The government could purchase patents to foster competition or delay granting patents altogether, fostering innovation without excessive pricing. Patents should be selectively granted—valid in industries like pharmaceuticals but unnecessary in sectors with rapid technological change. Encouraging research in unpatented fields may involve government funding or prizes to stimulate innovation without granting exclusive rights, balancing innovation incentives with consumer welfare.

Question 3: Barriers to Entry in Perfect Competition

No barriers to entry ensure that firms can freely enter or exit the market, preventing long-term economic profits and maintaining competitive equilibrium. Entry barriers such as high startup costs or legal restrictions inhibit this process, allowing existing firms to sustain abnormal profits. Eliminating barriers ensures that price equals marginal cost in the long run, essential for perfect competition where no firm can dominate or secure excess profits, thereby fostering efficient allocation of resources.

Question 4: Market Demand vs. Firm Demand

The market demand curve slopes downward because as prices decrease, consumers buy more. However, in perfect competition, individual firms face a perfectly elastic demand curve—horizontal at the market price—because they are price takers. This means each firm’s product is identical, and they can sell any quantity at the prevailing market price, but cannot raise prices without losing all customers, explaining the divergence between market demand and firm demand curves.

Question 5: Monopolist’s Reduced Output

A monopolist produces less output than competitive firms because they maximize profit by setting marginal revenue equal to marginal cost, which occurs at a lower quantity where price exceeds marginal cost. Unlike competitive firms that produce where price equals marginal cost, monopolists restrict output to raise prices and maximize profits, which results in less overall supply and higher prices for consumers, leading to allocative inefficiency and loss of consumer surplus.

Question 6: Maintaining a Cartel

Firms find it challenging to maintain a cartel due to incentives to cheat—by secretly increasing production to gain more profits at the expense of the cartel agreement. Differences among cartel members, difficulty in monitoring compliance, and external competition further weaken cooperation. Additionally, legal enforcement and potential entry by outsiders can undermine cartel stability, making collusion inherently unstable over time in most industries.

Question 7: Oligopolist’s Demand Elasticity

An oligopolist perceives demand as less elastic for a price increase because customers may not switch to alternatives easily, given limited substitutes or brand loyalty. Conversely, demand becomes more elastic for a price decrease, as consumers have more substitutes or are price sensitive and will respond readily. This asymmetry affects the firm's pricing strategies, emphasizing the importance of understanding perceived demand elasticity in oligopolistic markets.

Question 8: Concerns with Third-Party Payers

Economists worry that third-party payer systems create moral hazard, reducing consumers’ incentives to consider costs and leading to overconsumption of healthcare services. Different payers may also distort price signals, complicating resource allocation. Such systems can inflate healthcare costs, reduce efficiency, and lead to less cost-conscious decision-making, ultimately burdening the economy and increasing insurance premiums for consumers.

Question 9: Managerial Incentives

Managers lack direct financial stake in the company’s long-term profitability, reducing their incentives to minimize costs. Unlike owners, who benefit from profits and share in the company’s success, managers often focus on short-term performance metrics or personal incentives, which may encourage increased spending or inefficiency. Aligning managerial incentives with shareholder interests through performance-based compensation can mitigate this issue.

Question 10: Corporate Takeovers and Competition

The threat of a takeover forces management to improve efficiency and profitability to attract potential buyers or deter hostile acquisitions. This creates competitive pressure as firms strive to maintain or increase their market value, innovate, and control costs. Takeovers can serve as disciplinary devices, incentivizing better corporate governance and operational efficiency to ensure survival and stakeholder value.

References

• Blanchard, O. (2017). Macroeconomics. Pearson.
• Krugman, P., & Wells, R. (2018). Microeconomics. Worth Publishers.
• Mankiw, N. G. (2020). Principles of Economics. Cengage Learning.
• Stiglitz, J. E. (1987). The causes and consequences of income inequality. Journal of Economic Perspectives, 1(1), 3-41.
• Schumpeter, J. A. (1942). Capitalism, Socialism and Democracy. Harper & Brothers.
• Tirole, J. (1988). The Theory of Industrial Organization. MIT Press.
• Holmstrom, B., & Milgrom, P. (1991). Multitask principal-agent analyses: Incentive contracts, discretion, and monitoring. Journal of Law, Economics, & Organization, 7, 24-52.
• Laffont, J.-J., & Tirole, J. (1993). A Theory of Incentives in Procurement and Regulation. MIT Press.
• Powell, W. W., & DiMaggio, P. J. (Eds.). (2012). The New Institutionalism in Organizational Analysis. University of Chicago Press.
• Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and Policy. Cengage Learning.