Micro Economics

Complete the following questions in the form of short essays. Each question is worth 6 points.
1. Describe what a merger is and then explain the difference between a vertical merger and a
horizontal merger. Do some searching and give one example of a recent merger of 2
2. What are barriers to entry? Give examples of barriers to entry. In what ways is
government involved with the creation of barriers to entry?
3. For a perfectly competitive firm, if economic profits exist, how will this impact the number of
firms in the industry? If economic losses exist? What will long-run economic profits be for
the perfectly competitive firm?
4. The United States Department of Justice enforces the Sherman Anti-trust Law. Read the
following document located at:
In a 2 paragraph summary, explain what some of the most common forms of collusion and
anti-trust violations are and how the US Justice Department enforces the Sherman Act to
promote competition.
5. Explain how a monopolist can increase profits by price discriminating. What are the
conditions necessary for price discrimination?
6. Read the following article, US Blocks one of the World’s Biggest Razor Companies from
Buying Harry’s, found at:
Answer the following 3 questions:
a. Why did the FTC file this lawsuit?
b. Why is competition deemed better for consumers?
c. What factors tend to drive mergers and acquisitions?
7. Utilizing the chicken wing production function that we completed in the Module 2 homework
assignment which would have the following answers, respond to the questions given, assuming
the firm is a perfectly competitive firm:
25 118 250 212.50 462.50 2.1 1.8 3.9
6.7 1.3
35 185 250 297.50 547.50 1.4 1.6 3.0
5.7 1.5
45 242 250 382.50 632.50 1.0 1.6 2.6
5.1 1.7
55 293 250 467.50 717.50 0.9 1.6 2.4
3.8 2.2
65 331 250 552.50 802.50 0.8 1.7 2.4
2.9 2.9
75 360 250 637.50 887.50 0.7 1.8 2.5
A. Assume that the selling price for chicken wings is $2.50. What would be the profit
maximizing rate of output? Is the firm making profit above all costs? Why or Why
B. If the price of chicken wings drops to $2.00, how many chicken wings should be
produced then? Is the firm making profit above all costs at $2 chicken wings? Why
or Why not?
C. At what price would be the short-run breakeven point? At what price would be the
firm’s short-run shut down point?

8. Explain the three types of goods: search goods, experience goods and credence goods.
What type of advertising would firms likely use for each type of good and why?
9. How is collusion used in oligopoly markets? What is a cartel? Are they legal? Give one
example of either collusion or a cartel that has occurred in the past.
10.Given the following graph for a monopolist, answer the 3 questions provided:
A. What is the optimum output level that this monopolist would want to produce?
B. What price will the monopolist want to charge?
C. What is the amount of profit that this monopolist will receive?

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