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CH
7: The Nature of Industry
Answer and analyze the
following questions in chapter 7: 4, 6, 12, and 18
4. A firm has
$1,000,000 in sales, a Lerner index of 0.65 and a marginal cost of $35, and
competes against 1,000 other firms in its relevant market.
a. What price does this firm charge
its customers?
b. By what factor does this firm
mark up its price over marginal cost?
c. Do you think this firm enjoys
much market power? Explain.
6.Under what conditions might the Justice
Department approve a merger between two companies that operate in an industry
with a premerger of Herfindahl-Hirschman index of $2,900 if the post merger
index is expected to increase by $225?
12. Forey,
Inc., competes against many other firms in a highly competitive industry.Over the last decade, several firms have
entered this industry and as a consequence, Forey is earning a return on
investment that roughly equals the interest rate.Furthermore, the 4-firm concentrations ratio
and the Herfindahl-Hirschman index are both quite small, but the Rothschild
index is significantly greater than zero.
Based on this information, which market structure best characterizes the
industry in which Forey competes.
Explain.
18, Several
years ago, Phizer and Warner-Lambert agreed to a 90 billion merger, thus
creating one of the world’s largest pharmaceutical companies.Pharmaceutical companies tend to spend a greater
percentage of sales on R & D activities than other industries.The government encourages these R & D
activities by granting companies patents for drugs approved by the Federal Drug
Administration.For instance, the Phizer
and Warner-Lambert spent large sums of money developing its popular
cholesterol-lowering drug, Lipitor, which is currently protected under a
patent.Lipitor sells for about $3 per
pill.Calculate the Learner Index if the
marginal cost of producing Liptor is $.30 per pill.Does the learner inndex make sense in this
situation? Expain.