BUS640 Business Economics
1. If all the assumptions of perfect competition hold, why would firms in such an industry have little incentive to carry out technological change or much research and development? What condition would encourage research and development in competitive industries?
2. QuadPlex Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater, the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema possesses a degree of market power. Despite having market power, QuadPlex Cinema is currently suffering losses. In a conversation with the owners of QuadPlex, the manager of the movie theater made the following suggestions: "Since QuadPlex is a local monopoly, we should just increase ticket prices until we make enough profit." Comment on this strategy. How might the market power of QuadPlex Cinema be measured? Also recommend, the options that QuadPlex consider in the long run. Fully explainyour answer in terms of market powers.
3. How does a price ceiling undermine the rationing function of market-determined prices? How could rationing coupons insure that consumers with the highest values get the limited amount of a good supplied when government price ceilings create shortages? Fully explain your answer based upon demand, supply and market equilibrium.
4. Are organizations more risk adverse or individuals more risk adverse? Is one more risk tolerant? Use economic theory to explain your position.
BUS 640 Bu