Overview

Complete the following Unit 3 Written Homework Assignment for this module by the stated due
date on the Schedule. Please submit in the Unit 3 Written Homework Assignment Dropbox as
a .doc, .docx, .pdf or .rtf file.

Instructions

Complete the following questions in the form of short essays. Each question is worth 6 points. Be
sure to cite your references. Type all responses following each question on this assignment page
and submit to the Dropbox.

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
companies.
When two or more businesses join forces, they can grow in size and penetrate new
or current markets. This is known as a merger. A horizontal merger occurs when
businesses that sell related items combine, as opposed to a vertical merger, which
involves organizations that sell unrelated products. Vertical mergers, on the other
hand, happen between businesses that are at different stages of the production
process and involve the purchase or sale of goods from or to the business. For
instance, Sprint and T-Mobile recently united because they both produced the same
phones and had the same phone plans, and as a result of this union, there are many
more resources available under one roof.

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?

A market or industry sector may have barriers to entry, which might prohibit entrants from
entering and hence reduce competition. For instance, when a corporation produces more, its
average cost decreases. It is challenging for brand-new, small businesses to join the market
and be successful. An example of a natural monopoly is the market for tap water. By
granting firms patents, copyrights, and exclusive rights, the government puts up legal
obstacles to entry to prevent problems.

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?
No overall economic profits exist for a perfectly competitive organization since if
businesses in an industry are losing money, some of them will depart. In a world
with perfect competition, businesses make no money over the long term. Businesses
can generate overall accounting profits, but not economic profits. Because there are
an endless number of businesses creating uniform, infinitely divisible goods, profits
and losses are abolished.
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 4. The United States Department of Justice enforces the Sherman Anti-trust Law. Read the
following document located at:
https://www.justice.gov/atr/price-fixing-bid-rigging-and-market-allocation-schemes

Price fixing, bid rigging, market segmentation, and allocation schemes are a few
examples of collusions. If any of these collusions took place within the last five
years, they could each result in criminal charges. Monopolizing any aspect of
interstate commerce is against the law according to the Sherman Act. An illegal
monopoly emerges when one company dominates the market for a good or service,
and it did so not through the superiority of its own goods or services over those of
competitors, but rather by stifling competition through anticompetitive behavior.

Although the law is not broken just because a firm's aggressive competition and lower pricing drive
customers away from its less effective rivals, in this instance, competition is operating as it should.
Everywhere there is rivalry, prices may decrease to draw in more clients and enable them to
purchase more products from that business. Customers will always gravitate toward better offers and
cheaper costs since, for instance, every furniture business competes with one another for better
deals on couches, beds, chairs, etc. However, this also depends on the quality of the furniture and
other factors. Because each act is unique, it is easier for every business to prevent copyright
infringement.

5. Explain how a monopolist can increase profits by price discriminating. What are the
conditions necessary for price discrimination?

If the demand is elastic, the decrease in quantity sold will more than offset the increase in price,
resulting in lesser revenue for the monopolist. If the demand is inelastic, the monopolist can enhance
profits by raising prices, where the increase in price offsets the loss in quantity. When the seller
needs some degree of control over the supply of his goods, this is known as price discrimination. Due
to the seller's need to be able to later segment the market into two or more submarkets, such
monopoly power is required to discriminate prices.

6. Read the following article, US Blocks one of the World’s Biggest Razor Companies from
Buying Harry’s, found at:

https://www.cnn.com/2020/02/03/business/ftc-harrys-schick-owner/index.html

Answer the following 3 questions:

a. Why did the FTC file this lawsuit?

In order to prevent Edge Well Personal Care, which is the owner of Wilkinson Sword and Schick, from acquiring
startup Harry's, the FTC filed this action. Additionally, this removed the main rivals in the shaving market.
b. Why is competition deemed better for consumers?
This enables businesses like Harry's to charge customers less and offer more shaving items.
However, this is the way the economy is and how competition works, with many businesses going up
against one other.
c. What factors tend to drive mergers and acquisitions?
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Value creation, an increase in financial capability, and other variables are some that
frequently influence mergers and acquisitions. By utilizing these elements, a
company like Harry's is able to promote its items and demonstrate that they are of
high quality for both men and women.
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:

Input Output
(Hours) (Wings) MPP TFC TVC TC AFC AVC ATC MC
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
not?
If one unit costs $2.50, the profit-maximizing sales would be 331 units, which would be above
all costs due to the greater cost of the units and the longer hours.
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?
When companies raise or reduce their prices, that is where everyone competes. Assuming a fully
competitive firm, a firm produces to the point P=MC and this cost is exactly there in the center
because it is $2 for each chicken wing and the price stays the same.
C. At what price would be the short-run breakeven point? At what price would be the
firm’s short-run shut down point?

Although shutting down can eliminate all variable expenses, the company has already incurred short-
term fixed expenditures. Therefore, in this instance, the short term already consistently covers the
fixed expenditures.

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 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?
Before making a purchase, consumers who search goods weigh both the price and
the value, for instance, toilet paper, bottled water, canned vegetables, apples, paper
towels, furniture, clothing, and so forth. Experience goods are ones whose cost,
quality, or another factor is unknown until the product is purchased. Consider wine,
dining, and hair services. Backup cameras in automobiles are an additional
intriguing example. Last but not least, credibility goods are products and services
that, even after use, are difficult or impossible to evaluate. The consumer lacks the
technical knowledge or information necessary to evaluate the quality of the
commodity or service, which is why this is the case. All of these are used because
they are commodities and services, but mostly for economic growth.
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.

A collaborative effort to maximize profits is considered collusion. When a small

number of very large companies control a market, they may decide to work together
to reduce competition and increase profits. A cartel is a group of producers who
have come together to control a product's production, sale, and pricing in order to
create a monopoly and limit competition in a given sector or market. The majority of
cartels are in Europe, although antitrust rules prohibit them in the US. A previous
instance of collusion involves a food market that is having problems competing with
another company, and they start to battle for lower costs.

10. Given the following graph for a monopolist, answer the 3 questions provided:

D
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 A. What is the optimum output level that this monopolist would want to produce?
Monopoly businesses produce at the point where marginal revenue and marginal cost are equal in
order to maximize profits. MR=MC, then. At the locations where Q=Qs, the marginal cost curve
intersects the marginal revenue curve. Qs Units is the monopoly's ideal output level.
B. What price will the monopolist want to charge?
We will follow the price up to the demand curve at the point where MR=MC because this is where the
monopoly will seek to charge the price. Additionally, P=Ps is the price that the monopoly will aim to
charge to maximize profit.
C. What is the amount of profit that this monopolist will receive?

At the point where profits are maximized, the average cost of manufacturing one
unit is AC=Cs. TC=Cs.Qs represents the total cost of producing Qs units. Therefore,
TR=PQ=Ps.Qs is the entire amount of money the monopoly will make from selling
Qs units at Ps. Therefore, Profit=TRTC=PsQs.CsQs represents the profit that the
monopoly will make. Profit=Qs(Ps−Cs).

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 References

Barriers to Entry. (2022). https://www.economicshelp.org/blog/glossary/barriers-entry/

Hayes, Adam (2022). Microeconomics.

Department of Justice. (N/A). Laws. https://www.justice.gov/atr/antitrust-laws-and- you