What are resale price maintenance, tying arrangements, and predatory pricing?
What will be an ideal response?
Resale price maintenance occurs when a manufacturer agrees with a distributor about the minimum price at which the product will be resold. Resale price maintenance agreements are illegal only if they are anticompetitive. Resale price maintenance can create inefficiency if it allows the manufacturer to set the monopoly price for its product. However it can create efficiency when it enables manufacturers to induce retail sellers to give the efficient level of sales service for the product.
Tying arrangements occur when the seller agrees to sell one product to a buyer only if the buyer also buys another, different product. Tying can sometimes allow the producer to price discriminate and increase its profit. Tying arrangements can be illegal under the Clayton Act.
Predatory pricing is setting a low price to drive competitors out of business to then set a high, monopoly price when the competition has gone. If predatory pricing occurs, it can lead to monopoly but economists are skeptical that it occurs often because the firm trades off a sure loss for an uncertain future profit.
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Refer to the figure above. What is the profit-maximizing quantity that the monopolist should produce if it faces a constant marginal cost of $5?
A) 200 units B) 300 units C) 400 units D) 600 units
Private solutions to the problem of externalities are most likely when
A) transactions costs are low and the number of bargaining parties is small. B) transactions costs are low and the monetary damages to third parties are high. C) government actively encourages these solutions. D) transactions costs are low and the number of bargaining parties is large.
Which is the best example of a nondiversifiable risk for Stalwart Shoes?
A) A project to open a new store in Texas B) A project to open a new factory in Texas C) A project to move into the sock market D) The state of the economy in Texas E) The state of the U.S. economy
For purposes of determining comparative advantage, the cost of producing a good in each of two countries is measured in terms of:
a. metric units only. b. opportunity costs. c. total costs. d. the currency of the importing country. e. the currency of the exporting country.