Assignment Unit 6
Question:
1. Each of the following firms possesses market power. Explain its source
a) Merck, the producer of a patented cholesterol-lowering drug
b) Aliant, a provider of a telephone service
c) Chiquita, a banana supplier and owner of most banana plantations
Answer to Question:
a. Merck like most drug companies will have a patent for their cholesterol drug. The patent is essentially the legal rights to the formula for the drug and it prevents other companies from being able to copy/ produce the same drug Merck is producing. A patent is a type of a government-created barrier to entry, which gives Merck market power. (People who need medicine to control their cholesterol, will have to pay the premium for Merck’s drug).
b. …show more content…
The more customers Aliant has signed up for their service, the more calls people will make using their service; the more calls that are made using their service the more Aliant’s operating costs will decrease. This gives Aliant a cost advantage over their competitors, which causes Aliant to become a market power in the telephone services market. Also if Aliant offers services in areas where other companies do not, then customers needing service everywhere will have to go with Aliant as a service provider, which would mean that Aliant could charge a premium for their services and people would pay it, again making Aliant a market power.
c. Chiquita owns and controls most banana plantations. Control over a resource that is not widely available, like bananas, gives Chiquita market power.
2.4 friends, A,B, C and D have made a documentary about their hockey team. They are thinking of making the movie available for download on the internet, and they can act like a monopolist, if they choose. Each time the movie is downloaded, the ISP charges them a fee of $4. The friends argue about what price to charge customers per download. The following table shows the demand schedule
Price of Download Quantity of downloads
Question:
1. Each of the following firms possesses market power. Explain its source
a) Merck, the producer of a patented cholesterol-lowering drug
b) Aliant, a provider of a telephone service
c) Chiquita, a banana supplier and owner of most banana plantations
Answer to Question:
a. Merck like most drug companies will have a patent for their cholesterol drug. The patent is essentially the legal rights to the formula for the drug and it prevents other companies from being able to copy/ produce the same drug Merck is producing. A patent is a type of a government-created barrier to entry, which gives Merck market power. (People who need medicine to control their cholesterol, will have to pay the premium for Merck’s drug).
b. …show more content…
The more customers Aliant has signed up for their service, the more calls people will make using their service; the more calls that are made using their service the more Aliant’s operating costs will decrease. This gives Aliant a cost advantage over their competitors, which causes Aliant to become a market power in the telephone services market. Also if Aliant offers services in areas where other companies do not, then customers needing service everywhere will have to go with Aliant as a service provider, which would mean that Aliant could charge a premium for their services and people would pay it, again making Aliant a market power.
c. Chiquita owns and controls most banana plantations. Control over a resource that is not widely available, like bananas, gives Chiquita market power.
2.4 friends, A,B, C and D have made a documentary about their hockey team. They are thinking of making the movie available for download on the internet, and they can act like a monopolist, if they choose. Each time the movie is downloaded, the ISP charges them a fee of $4. The friends argue about what price to charge customers per download. The following table shows the demand schedule
Price of Download Quantity of downloads