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 explain
your 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