Microeconomics Multiple Choice Questions
Added on 2020-05-04
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Short essay question 1-31.Apple has the largest market capitalization of any company in the world; its stock is worth over $750 billion, well ahead of Alphabet (Google), Microsoft and Amazon. Apple produces computers, phones, tablets, and other digital devices. It also provides services, including the App Store and iTunes. Apple holds 10 percent of the laptop market, 20 percent of the smartphone market, 60 percent of the tablet market, and 30 percent of the music streaming business.a) A key part of Apple’s success has been the iPhone. Apple is deciding what price toset for the iPhone XI when it comes out in 2018. The elasticity of demand for iPhone X turned out to be -2. Marginal cost is $550. What price does Apple charge? For full credit, show how you obtained your answer. (5 points)b) Some lawyers claim that Apple is a monopoly. What would you need to know to answer this question, based on what you have learned in this course? (9 points)c) Building upon your answer to part (b), do you think Apple is a monopoly? Explain why or why not? (6 points)Answer aPrice is set at a point where marginal revenue equals marginal cost. Given, marginal Cost = $500The relation between marginal revenue and elasticity is given by the following expression MR = P (1-1/e), Where e is the elasticity Given, elasticity is -2Therefore, MR = P(1-1/2) = P/2At equilibrium,MR=MCOr, P/2 = 500Or, P= 1000Apple would charge a price of $ 1000Answer bIn order to know whether Apple is a monopoly or not the characteristic of Apple should be matched with principal characteristics of a monopoly market. The main features of a monopoly market is as followsSingle Seller
The monopolist is the only seller in the market. It is a single firm, person or individual that serves the entire demand of the market.No close substitutesThe product sold by the monopolist is a unique product and it should not have any close substitutes.Entry BarriersIn order to maintain sloe position in the market high barriers to entry exists. The entry f the new firms increases supply in the market and reduces the market share and concentration. Ownership of a strategic inputThe monopolist has ownership over a strategic input that other suppliers do not have access.Price maker Being a sole supplier in the market, the monopolist exclusively controls price andoutput. The monopolist is a price maker in the market unlike the competitive firms that are price takers. Answer cApple possesses many characteristics of monopolist. The monopolist is price maker and usually sets a high price. The pricing power of Apple gives the company a Monopoly like reach. The company ensuring ownership over a strategic input solely owns the software used by Apple. Though some competitors exits in the laptop and phone market restricting Apple’s position of a pure monopolist, it is still considered as a monopolist because of some monopoly alike characteristics. 2 You are the sales manager for VF Corporation. Currently you sell 10,000 pairs of Timberland boots per year to Macy’s for $80 per pair. Macy’s calls and says they will increase their order to 12,000 pairs annually if you cut the price to $70 per pair. The marginal cost of each pair of boots 1is $60.Assuming you can keep this deal secret from other buyers (so that they do not insist on similar price cuts), what would you do in this situation? Explain in detail using MBA 505 concepts why you would or would not accept this offer. (9 points)
Answer By selling 10,000 pairs at a price of $80 per pair VF corporation earns a revenue of (10,000*$80)= $80,000. In the new deal where 12,000 pairs is supposed to be sold atprice $70 then the projected revenue will be (12,000* $70) = $84,000. The new price still greater than the marginal cost of the company, which is $60. It is profitable for VF Corporation to accept the new deal and offers Macy each pair of boots at a price of $70.As the corporation can kept the deal with Macy secret, the price for other buyers will remain same. This will allow the company to device a price discrimination and maximize profit. 3As more people do more of their shopping online, department store chains are cuttingback on the number of stores they keep open. This is proving disastrous to some shopping malls.a) Suppose you are the operations manager for Sears. Based on material you have studied in MBA 505 this semester, how do you decide which stores to keep open and which stores to close? (5 points)b) Assuming that the shift in shopping from face-to-face to online is permanent, what will the closing of more department stores mean for the following key economic indicators for shopping malls in the SHORT and LONG run: price (rent they can charge totenants), output (square footage rented), profits (total revenue minus total cost), and number of malls. Be sure to explain your answer using course concepts. (10 points)Answer a)The decision about which stores to keep open and which store to keep close should be based on the condition of demand and profitability. The stores having high operation or inventory cost should be closed. Whereas stores facing high demand and profit should be remained, open. b)In response to a shift in face to face shopping to online shopping, the stores in the shopping mall closed With reduction in the number of tenants the price or rent is likely to be increase. In the short run, Price will decrease at a slower pace whereas in the long run price will be reduced greatly.With reduction in the number of tenants the area of square footage rented will bereduced. In the short run the output, remain unchanged while in the long term the output will decrease rapidly. Both the price and out falls leading to a fall in the revenue. Then profit, which is revenue minus cost, will decrease. The number of malls will be reduced. With reduction in the number of visitors in the shopping mall, the profit of the supermall reduces. As Shopping malls are capital intensive, in the short run number of shopping mall will not be reduced. In the long run however, the number of shopping malls reduced largely. multiple questions 4-31
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