Chapter 9 #6

The following table summarizes information about U.S. pancake syrup products:
Average Consumer
Price
Average Cost
Brand
Willingness to Pay
(Cents/Ounce)
(Cents/Ounce)
(Cents/Ounce)
Hungry Jack
20
15
14
Aunt Jemima
21
19
17
Log Cabin
28
24
20
Mrs. Buttersworth
21
18
14
Assume the following apply to the time period relevant for the question:
Demand remains stable.
No new firms enter and no new products are introduced.
No changes in advertising are made.
Firms have constant returns to scale and input prices are constant.
a Given current prices, which brand do you expect to gain share in the next few
months?
b Which brand can earn the highest profits in the longer run (assuming prices can
be changed)?
Chapter 10 #2 p.361
During the 1990s, a consortium pf private health insurance firms began measuring
their own quality. Within a few years, many of these insurers voluntarily disclosed
their quality. Why do you believe this industry moved to create quality measures?
Disclosure was more common in some states than in others. Why do you believe
there was such geographic variation?
Chapter 11 #9 p. 396
Consider an industry in which firms can expect to sell 1,000 units annually at a
market price of P. Before firms enter, they do not know their production costs with
certainty. Instead, they believe that unit costs can be $2, $4, $6, or $8 with equal
probability. Annualized sunk production costs are 1,500 firms cannot recover this
expense should they choose to exit. What is the equilibrium price at which firms are
indifferent about entering? What is the average profit of firms that are producing?
(Hint: Firms will produce as long as the price equals or exceeds unit production
costs.)