Suppose you are the manager of a chain of computer stores.

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  1. Suppose you are the manager of a chain of computer stores. For obvious reasons you have been closely following developments in the computer industry, you have just learned that the government has passed a two-prong program designed to further enhance the computer industry position in the global economy. The legislation provides increased funding for computer education in primary and secondary schools, as well as tax breaks for firms that develop computer software. As result of this legislation, what do you predict will happen to the equilibrium price and quantity of software? Show graphically the possible situations. ( 10 marks)

 

  1. Fort Inc., competes against many other firms in a industry. Over the last decade, several firms have entered this industry and, as consequences, Fort is earning a return on investment that roughly equals the interest rates. Furthermore, the four-firm concentration ratio and Herfindahl Hirschman index are both quite small. Based on this information, which market structure best characterizes the industry in which Fort competes? Explain the characteristics this market structure and what happens to the Fort Inc’s profit in the short-run and long-run. What are your strategic advices to Fort Inc. to sustain its profit in the long-run?  ( 10 marks)

 

  1. A certain town in a state obtains all of its electricity from one company, South Electric. Although the company is a monopoly, it is owned by the citizens of the town, all of whom split the profits equally at the end of each year. The CEO of the company claims that because all of the profits will be given back to the citizens, it makes economic sense to charge a monopoly price for electricity. Do you agree with the CEO’s argument?  Give reasons. What are the social costs of monopoly power? What are the measures do you suggest to control monopoly power? ( 10 marks)

 

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