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Homework answers / question archive / 1) In vertical separation, the downstream firm usually makes more profit than the upstream firm does (TRUE or FALSE) 2) An example of horizontal merger is MTN merging with Vodacom (TRUE or FALSE) 3) A monopolist is faced with two different demands for its products from low-type consumers and high-type consumers
1) In vertical separation, the downstream firm usually makes more profit than the upstream firm does (TRUE or FALSE)
2) An example of horizontal merger is MTN merging with Vodacom (TRUE or FALSE)
3) A monopolist is faced with two different demands for its products from low-type consumers and high-type consumers.
Demand for low-type consumers is q1 = 60 – ½ p
Demand for high-type consumers is q1 = 80 – ½ p
It costs the monopolist $ 20 to supply its products i.e MC (Marginal Cost) = 20 and he charges consumers $ 20 for his product.
How much profit does the monopolist earn from supplying his product to both low-type and high type consumers?
Select one:
4) Firms who want to capture more surplus can use the following mechanism (s):
Select one:
5) Where there is a problem of successive monopolies and double marginalization the firms can use various methods to address the resulting problem of excessively high prices and reduces profits.
Which one of the following methods is/ are most likely to work?
Ans(1)--- true
Explanation-----
Vertical seperation is meant by enforcing a split of the upstream bottleneck and downstream business..In vertical seperation ,it is the diwnstream firm which tend to make more profits than the upstream firm
Ans(2) True
Explanation-----
A horizontal merger is the merging of two firms engaged in similar Business. The merger of MTN and Vodacom is horizontal merger because both are network and communication firms of south Africa.
Ans(3) option (D)---- $0 profit
Explanation-----
The firm is making zero Economic profit as price equals marginal cost.
P=MC=$20
The firm earns maximum profit when MR=MC and the profit bevomes zero,when the price equals Marginal cost. This is done by firms when their objective is sales maximisation not Profit maximisation.
Ans (4)---- option (D)
(11) only --- block pricing technique
Explanation-----
Block pricing is a pricing strategy in which identical products are packaged together in order to enhance profits by forcing customers to make purchases
Ans (5) option (111) --- the upstream firm choosing downstream firm by use of a franchise
Explanation-----
The problem of double marginalisation occurs when two big monopoly firms in their own field rule the market and borh attempt to maximise their own profit by charging price with mark up over Marginal cost.
The solution is vertical integration with franchise because the upstream firm is dependent upon downstream firm for its partial business.
