Question & Answer

Which way will the supply curve shift if the wage rates in alternative jobs rise?

Re-word the explanation of marginal disutility of work in terms of the marginal utility of leisure.

Which of the above assumptions do you think would be correct in each of the following cases?

               (a)  Supermarket checkout operators.

               (b)  Agricultural workers.

               (c)  Crane operators.

               (d)  Economics teachers.

               (e)  Call-centre workers.

               (f)   Professional footballers.

               (g)  Bar workers.

1. If the firm adjusts the size of its mark-up according to changes in demand and the actions of competitors, could its actions approximate to setting price and output where MC = MR?

2. Some firms set their prices by adding a mark-up to average variable cost (the mark-up would be larger to include an element to cover fixed cost). Why might this make pricing easier for the firm? (See Box 6.7.)

Are satisficing firms more likely to suffer from X inefficiency (see Box 7.5) than firms which seek to maximise profit or sales revenue?

Will this type of behaviour tend to lead to profit maximisation?

Explain why the existence of asymmetric information may be damaging for both parties in an economic exchange, not only for the one who has incomplete information.

How will competition between growth-maximising firms benefit the consumer?

1. Which of the above theories overlap and in what way?

2. Why, do you think, is it difficult to find adequate empirical support for any of them?

Which of the three types of merger (horizontal, vertical and conglomerate) are most likely to lead to

(a) reductions in average costs;

(b) increased market power?

See if you can identify two companies that are vertically integrated and what advantages they have from such integration.

Since advertising increases a firm’s costs, will prices necessarily be lower with sales revenue maximisation than with profit maximisation?

Draw a diagram with MC and MR curves. Mark the output (a) at which profits are maximised; (b) at which sales revenue is maximised.

Are there other points in the supply chain/production process where firms could make use of a better understanding of behavioural economics?

Why may managers choose to set prices that cover all costs including sunk costs.

Why might it present problems for a firm if managers are overconfident? Can you think of any reason why CEOs might be more inclined to optimism than the population average?

Which is easier – for managers to make decisions that maximise profits or for consumers to make decisions that maximise their utility? Discuss some of the arguments in favour of each case

Make a list of six possible aims a manager of a high street department store might have. Identify some conflicts that might arise between these aims?

What cost concepts are there other than those based on opportunity cost? Would the use of these concepts be likely to lead to an output greater or less than the profit-maximising one?

How easy do you think it would be for a firm to split customers into different groups based on their incomes?

Explain why, if the firm can practise first-degree price discrimination by selling every unit at the maximum price each consumer is prepared to pay, its revenue from selling 200 units will be the sum of both the shaded areas in Figure 8.13.

If customers were all charged the same price for a product could this ever be classed as an example of price discrimination? Explain your answer.

Another type of strategy firms can follow in a repeated game is the ’tit-for-tat’ strategy. What is the tit-for-tat strategy? What impact will it have on the most likely outcome in a repeated game?

Is the incentive structure in the single-move prisoners’ dilemma game in the interests of society?

Which of the following markets do you think are contestable?

(a) credit cards; (b) brewing; (c) petrol retailing; (d) insurance services; (e) compact discs?