Exam 16: Real-World Competition and Technology

Describe two market mechanisms that may serve to enhance efficiency and limit the lazy monopolist problem.Can efficiency be achieved by incentives other than profit?

Demonstrate graphically and explain verbally why there is an incentive for suppliers to get together to restrict supply.As part of your explanation discuss why consumers-even though they are hurt by this-typically don't fight it.

According to economic theory, a monopolist would hire a lobbyist only if the expected marginal benefit of lobbying exceeded the marginal cost.

Competitive pressure places a limit on firms' laziness.

Natural monopolies are mostly regulated industries because otherwise too many firms would enter the market and price would be driven too low for any firm to offer goods for a profit.

Distinguish two uses of the word competition,and relate that discussion to Peter Thiel's statement that competition is for losers.

What do economists mean by "reverse engineering"?

According to Peter Thiel's book Zero to One, firms are always working toward:

Refer to the following graph. Although this monopolist could technically keep average total costs down to C_0, its costs are C₁. This is an example of a(n):

Mail-order sales of wine are illegal in some states. Some wineries argue that the ability to ship directly to consumers helps small wineries and that shipping bans unfairly protect home-state wineries, raising prices to consumers. Others argue that the bans allow states to collect tax revenues and to keep wine from being sold to minors. Economists looking at this case would say that one effect of the ban is to prevent:

In a dynamic context, firms concentrate on:

Lazy monopolists are characterized by the tendency to:

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

Define X-inefficiency and explain how the threat of takeovers helps to limit X-inefficiency.

Competition is best seen as a process.

Refer to the graph shown. If suppliers can reduce output from M to L, the suppliers excluded from the market will lose the producer surplus shown by area:

Suppliers would be the most eager to organize to restrict output if they faced:

Refer to the graph shown. A monopolist that efficiently produces the profit-maximizing level of output would have per-unit cost equal to:

Refer to the graph shown. The per-unit cost incurred by a monopolist that is X-inefficient but produces the profit-maximizing level of output is best illustrated by:

Explain how owners can try to deal with the monitoring problem by using incentive-compatible contracts.Is tying managerial compensation to annual profit a sure-fire solution to the monitoring problem? Why or why not?