What are the reasons for the existence of monopoly? (b) Which of these did Alcoa use to establish and retain a monopoly? Problem 1 If the market demand and supply functions for pizza in Newtown were: QD = 12,000 - 1,000P QS = -4,000 + 1,000P Determine algebraically the equilibrium price and quantity of pizza

Please see the attached file for solution.

9. (a) What are the reasons for the existence of monopoly? (b) Which of these did Alcoa use to establish and retain a monopoly?

Reasons for existence of monopoly: There are several benefits of monopolies to the consumers. That's why we see so many monopolies still existing in the society.
• Monopolies provide incentives to innovate. As the monopolies enjoy the power they are more likely to innovate as all the benefits of innovation are enjoyed by the monopolies. In a competitive market, companies are reluctant to innovate as innovations by one firm are easily imitated by the other firms but at a very low cost. Thus, if a firm does not have a property rights to a new technology, etc. it would worry why create new technology.
• Monopolies being the only supplier in the market enjoy high volumes and therefore can easily enjoy the benefits of economies of the scale.
• Another benefit of monopoly is that it provides standardization. Since there is just one supplier, the supplies are standardized.
• The monopolies create incentives to provide public goods for products such as marketing, awareness, etc.
• For certain industries, monopolies are the only way of business such as utilities. The cost of building water pipeline in the city is huge and it does not make sense to have two or more water distribution companies in the same area.

The question is incomplete to answer part b. We need the complete case to answer part b.

Problem 1

If the market demand and supply functions for pizza in Newtown were
QD = 12,000 - 1,000P
QS = -4,000 + 1,000P

Determine algebraically the equilibrium price and quantity of pizza.
In equilibrium Qs=QD
12000-1000P=-4000+1000P
Solving we get
2000P=16000
P=8
Now substitute P to get value of Q
Q=12000-1000*8=4000

** The tariff-inclusive price will be $3(1+.33) = $4. What are the impacts of tariff on domestic consumption, domestic production, imports, and government's tariff revenue?

This seems to be a separate question and not part of the Problem 1. The question is incomplete to answer properly. I think the original price was $3 and after imposing, tariff the price increased to $4. The impact of tariffs will be:
• The effective price paid by the buyer will increase
• The effective price received by the seller decrease
• A part of the tariff is borne by the buyer and a part by the seller. Who bears how much will depends upon the slope of the supply curve and demand curve.
• After imposing the tariffs the domestic consumption will decline, The domestic production will remain the same, as tariff does not affect the cost of domestic supplies. The imports will decline and government will earn tariff revenues ($1 on each imported unit).

8. The Halloran Specialty Food Company impost specialty foods from Europe and pays for imports in euros. The financial officer of the company notices that the dollar/euro exchange rate fluctuates continuously, sometimes even by several percentage points in the course of a few days. (a) What risk does the company face? (b) How can the company cover this risk?

a) The company is bearing the transaction exposure risk. The company is importing and paying in Euros. Thus, the cost of inputs to the company will vary depending upon the exchange rate and hence its profits will show high variability.
b) To cover the risk, the company should enter into long-term contract with the specialty foods at a fixed price in Euros. Then, it should enter into forward agreements in the foreign exchange market to buy Euro (equal to the euros required to be paid) on the specified date (when the payment for the supplies is to be made. By doing do the firm will be able to fix the cost of its imports. By entering into forward contracts, the firm is fixing its material cost. The firm can also use options on the Euro. The firm should buy call options. The call option would provide the benefit that in case the price of the Euro is higher than the strike price under the call option, the firm can exercise the options and can purchase the Euro at the strike price of the call option. However, in case the Euro declines the firm lapses the options and buys the Euros from the market. Thus by taking options while the firm is able to eliminate the losses, it still would be able to take advantage of profits in case the Euro exchange rate decline.