Determine whether the following transactions involve spot exchange, contracts, or vertical integration A major oil company refines gasoline from…
1.Determine whether the following transactions involve spot exchange, contracts, or vertical integration A major oil company refines gasoline from crude oil produced by oil wells that it owns.Transcontinental, an interstate natural-gas pipeline, has a legal obligation to purchase a specified amount of gas per week from a well owned by Fred Smith in Enid, Oklahoma.A cabinetmaker purchased a dozen wood screws from the local hardware store.An electric utility purchases coal from an underground mine.2.Alpha Industries operates in a highly competitive market. While there are a few other firms in the industry due to the high fixed costs of building plants, rival firms are very aggressive in their pricing strategies. Of the products sold in the industry, over 90% have 10 years of patent protection remaining. Does this industry meet an economist’s definition of a perfectly competitive industry?3.In Savannah, Georgia, the retail gasoline market consists of 8 firms. Firm 1 has 30% of the market, Firms 2 and 3 have 20% each and the remaining firms have 6% each. What is the four-firm market concentration ratio for this industry?4.A firm has $5 million in sales, a Lerner Index of 0.75, and a marginal cost of $45, and competes against 3,000 other firms in the relevant market. a) What price does this firm charge its customers? b) By what factor does this firm mark up its price over marginal cost?5.Suppose the cost function for your firm is: C = 10 +2Q + 5Q2. If the firm sells output in a perfectly competitive market and other firms in the industry sell output at a price of $35, what level of output should the firm produce to maximize profits or minimize losses? What will be the level of profits or losses in the firm makes optimal decisions?6.Delta Airlines experienced huge losses for several years in the early 2000’s, yet it continued to operate its fleets. Why didn’t Delta shut down its operations to further avoid losses?7.You are the manager of a monopolistically competitive firm. The inverse demand curve you face is P = 50 – 4Q. Your cost function is C(Q) = 10 + 2Q. a) What level of output should you produce to maximize profits? b) What is your profits and what will happen in your market in the long run? Explain. 8.You are the manager of a hamburger joint with a marginal cost of $6.00 per hamburger. The hamburger joint is a local monopoly near campus. During the day, only students eat at the joint while in the evening only the faculty members eat there. If students have an elasticity of demand for hamburger of -4 and the faculty has an elasticity of demand of -3, what should your pricing strategy be to maximize profits?
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