Chapter 10: Exercise Questions 1.) Would auctioning broadcast licenses be more efficient than having the Federal Communications Commission (FCC) assign licenses on basis designed by the FCC? Explain. 2.) Which of the three types of government policies- antitrust, social regulation, or economic regulation- is the basis for each of the following? Who benefits from the policy? a.) Beautician education standards b.) Certified public accounting requirements c.) Liquor licensing d.) Justice Department Guidelines e.) The Clean Air Act f.) The nutrition and labeling act 3.) “The Japanese or Chinese or Koreans or others, are beating us at every step. We must act as they do. We must allow and encourage cooperation among firms, and we must develop partnerships between business and government.” Evaluate this argument. 4.) “The government should not be the sole provider of a good or service unless there is a compelling reason.” What compelling reason? Would you agree that issuing drivers’ licenses must be left to the government? 5.) What is a natural monopoly? Can you think of an example of a natural monopoly? If you can, explain why you consider it a natural monopoly. Chapter 11: Exercise Questions 1.) What types of products are phone services and electricity? 2.) Why does a firm spend an enormous amount on advertising when the ads provide consumers virtually no information? For instance, what does the advertisement showing the Rock of Gibraltar and suggesting that we should “own a piece of the rock” tell us? 3.) Why do consumers pay twice as much for Bayer aspirin than for generic aspirin when they know that the two are chemically identical? 4.) What does it mean to say that a firm should devote resources to an activity as long as society values that activity more than its values the resources allocated to that activity? 5.) Using the following Marginal Revenue and Marginal Cost, determine the profit maximizing price and quantity: Output MC MR 0 0 0 1 $30 $80 2 $50 $80 3 $80 $80 4 $120 $80 5 $170 $80 6.) Explain why the rule MR = MC defines profit maximization. 7.) How long has Wal-Mart made positive economic profits? How long has Starbucks earned positive economic profits? Has entrepreneurs been able to innovate and otherwise compete with Wal-Mart and Starbucks? Explain.