ECO 550 Week 9 - Check Your Understanding Ch. 16 Problems 4, 6(a, c), 9 (All Questions Answered)
ECO 550 Week 9 - Check Your Understanding Ch. 16 Problems 4, 6(a, c), 9 (All Questions Answered) fin571
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Date Created: 11/11/15
ECO 550 Week 9 Check Your Understanding Chapter 16 Problems 4 6a c 9 4 A monopolist without patent protection would still have strong incentives to innovate in order to maintain the monopoly position and profit levels of the firm The competitive firm would be forced to innovate in order to survive since there is no cushion of monopoly profits to fall back on By staying ahead of competition innovation is a way to earn abovenormal profits until others catch up In the case of a monopolist with patent protection the incentives to innovate are likely to be reduced The monopolist might carry out an extensive research and development program but delay bringing innovations to the market unless they are clearly and immediately profitable or unless they are needed to forestall new competition 6 The bulk plastic industry analysis a P800 20Q TC300500Q10Q2 TR800Q 20Q2 MC50020Q MR 800 40 Q MC MR implies 500 20 Q 800 40 Q or 60 Q 300 or Q 5 P 800 205 700 b Profit TR TC PQ 300 500 Q 10 Q2 at P 700 and Q 5 1t 5700 300 5005 1052 450 million c MC MR as is the case in competition 500 20Q 620 or 120 20 Q or Q 6 and P 620 9Branding Iron Products pollutes the air and water The tax alternative is desirable in that it internalizes costs to the firm causing it to adjust its price output and production technology in order to maximize profits while considering the cost of the externalities it generates The most difficult aspect of this alternative is specifying the amount of pollution tax rate so that the firm will reduce its pollution to a quotsatisfactoryquot level It is probably not desirable to absolutely prohibit pollution by the firm since it is likely that the cost of eliminating the last few percentage points of pollution will be very high Like the Coase Theorem if Branding Iron has a property right to pollute it could be paid to reduce that pollution Indeed there is a presumption that Branding Iron was operating for some time before the new residents start to complain
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