- (Bounds of the Firm) Ashland Oil, Inc., buys its crude oil in the market. Larger oil refiners, such as Texaco, drill for their own crude oil. Why do some oil companies drill for their own crude oil and others buy crude oil in the market?
- (Economies of Scope) Distinguish between economies of scale and economies of scope. Why do some firms produce multiple product lines, while others produce only one?
- (Asymmetric Information) Define asymmetric information. Distinguish between hidden characteristics and hidden actions. Which type of asymmetric information contributes to the principal-agent problem?
- (The Principal-Agent Problem) Discuss the nature of the principal-agent problem. Determine which is the principal and which is the agent in each of the following relationships: a. A firm that produces export goods and the export management company that helps market its goods overseas b. The management of a firm and its stockholders
- (Signaling) Give an example of signaling in each of the following situations. a. Choosing a doctor b. Applying to graduate school
Chapter 15 questions: 6. (Business Behavior and Public Policy) Define market power, and then discuss the rationale for government regulation of firms with market power.
- (Theories of Regulation) Why do producers have more interest in government regulations than consumers do?
(a) Compare and contrast the public-interest and special-interest theories of economic regulation. What is the “capture theory” of regulation?
(b) Which of these theories best describes the case of airline deregulation? Which best explains the government’s case against Microsoft?
- (Origins of Antitrust Policy) Identify the type of anticompetitive behavior illustrated by each of the following:
- A university requires buyers of season tickets for its basketball games to buy season tickets for its football games as well.
- Dairies that bid on contracts to supply milk to school districts collude to increase what they charge.
- The same individual serves on the boards of directors of General Motors and Ford.
- A large retailer sells merchandise below cost in certain regions to drive competitors out of business.
- (Mergers and Public Policy) Calculate the Herfindahl-Hirschman Index (HHI) for each of the following industries. Which industry is the most concentrated?
- An industry with five firms that have the following market shares: 50 percent, 30 percent, 10 percent, 5 percent, and 5 percent.
- An industry with five firms that have the following market shares: 60 percent, 20 percent, 10 percent, 5 percent, and 5 percent.