Question Set 1 QSQS PDF

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2020 SUMMER ECO3139 PRACTICE MATERIALS exams...

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UNIVERSITY OF OTTAWA Department of Economics

ECO 3139

Spring/Summer 2020

Dr. M. Rafiquzzaman Question Set 1 ________________________________________________________________________ 1.

Define • Transaction costs • Market power • Fixed cost • Sunk cost • Avoidable cost • Lerner index • Economies of scale • Economies of scope • Consumer's surplus, producer's surplus and total surplus (welfare) • The relevant market • Barriers to entry

2.

Discuss the main components and limitations of the Structure-Conduct-Performance Paradigm to the study of industrial organization.

3.

Name the factors (components) that characterize market structure, conduct and performance.

4.

Discuss the main features of the Chicago School Approach to industrial organization.

5.

Define transaction costs. Transaction costs are an important cost of using the market rather than producing an input internally. Describe the main types of transaction costs and give examples.

6.

The firm and the market can be seen as alternative ways of organizing production activities. Discuss some of the advantages and disadvantages of using the firm vs. using the market.

7.

Define economies of scale and economies of scope. What are the sources of economies of scales?

8.

Consider the following measure of economies of scale: AC S= MC a)

For what values of S do we have economies of scale? diseconomies of scale? Illustrate graphically using the AC and MC curves.

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b)

Define the output elasticity of cost as B= (% change in costs)/ (% change in output) Find the relationship between S and B and interpret this relationship.

9.

Give the assumptions behind the prefect competition model and discuss their realism.

10.

Define market power or monopoly power of a firm. How do you measure market power? Demonstrate the link between the degree of market power (Lerner index) and the elasticity of demand.

12.

Discuss the different types of structural barriers to entry.

13.

Define three types of mergers: vertical, horizontal, and conglomerate. Discuss some of the motives behind each type of merger.

Industry X: 30, 20, 12, 10, 10, 8, 7, 3. Industry Y: 20, 20, 16, 16, 9, 8, 6, 5. a) b) c)

Calculate the four-firm concentration ratio and the Herfindahl-Hirschman Index of each of these industries. Use your answer in (a) to discuss the advantages and disadvantages of each concentration measure. Calculate the number equivalent of each industry. What does this number represent?

– a) b)

Calculate the equilibrium price and quantity. Calculate consumer surplus.

Now assume that firms merge to a monopoly. The merger improves the product, which changes the demand function to p = 150 - y. Costs remained unchanged. c)

Calculate the new equilibrium (price and quantity)

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d) e)

Calculate the new consumer surplus, profits, and total welfare. Does total welfare increase or decrease with the merger?

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