Supply and Demand, and Market Failure: Questions and Answers
MBAC 512
Prof. Silke Forbes
Fall 2013
Problem Set 5
DUE DATE: November 6, 2013
Question 1:
At the Portland Fish Exchange, each day some amount of cod is brought to market. Supply is perfectly inelastic at that amount. How much cod is caught and brought to market varies day to day. Assuming the demand curve does not vary over time, use a supply and demand diagram to illustrate how the price is determined on different days. Explain how this process allows us to identify different points on the demand curve.
Question 2:
Consider the CEO compensation regression results on p.68 of the Brander-Perloff reading (on
Blackboard under Required Readings). What is the estimated effect of experience on CEO compensation? Is it statistically significant? Is it economically significant? Explain briefly.
Question 3:
Some companies, such as Heinz (which gets most of its revenue from sales of ketchup and packaged foods), can reliably forecast their revenues based on extrapolation of past data, adjusting for seasonal effects. Other firms, such as FedEx or Sony, have found that they cannot simply extrapolate from the past. They need to use theory-based models, accounting for demand shifters such as income in their forecasting models. Briefly explain why they are different from
Heinz.
1
Question 4:
Please answer Memo 13 of the Time-Warner case in the Baye-Prince textbook. This requires the use of the file Output.xls, which I have posted on Blackboard under Assignments. The answer to the Memo should be brief (no more than a few sentences).
Multiple Choice Questions:
5.
The term market failure refers to
a. a market that fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand.
c. ruthless competition among firms.
d. a firm that is forced out of business because of losses.
6.
Market failure can be caused by
a. too much competition.
b. externalities.
c. low consumer demand.
d. scarcity.
Prof. Silke Forbes
Fall 2013
Problem Set 5
DUE DATE: November 6, 2013
Question 1:
At the Portland Fish Exchange, each day some amount of cod is brought to market. Supply is perfectly inelastic at that amount. How much cod is caught and brought to market varies day to day. Assuming the demand curve does not vary over time, use a supply and demand diagram to illustrate how the price is determined on different days. Explain how this process allows us to identify different points on the demand curve.
Question 2:
Consider the CEO compensation regression results on p.68 of the Brander-Perloff reading (on
Blackboard under Required Readings). What is the estimated effect of experience on CEO compensation? Is it statistically significant? Is it economically significant? Explain briefly.
Question 3:
Some companies, such as Heinz (which gets most of its revenue from sales of ketchup and packaged foods), can reliably forecast their revenues based on extrapolation of past data, adjusting for seasonal effects. Other firms, such as FedEx or Sony, have found that they cannot simply extrapolate from the past. They need to use theory-based models, accounting for demand shifters such as income in their forecasting models. Briefly explain why they are different from
Heinz.
1
Question 4:
Please answer Memo 13 of the Time-Warner case in the Baye-Prince textbook. This requires the use of the file Output.xls, which I have posted on Blackboard under Assignments. The answer to the Memo should be brief (no more than a few sentences).
Multiple Choice Questions:
5.
The term market failure refers to
a. a market that fails to allocate resources efficiently.
b. an unsuccessful advertising campaign which reduces demand.
c. ruthless competition among firms.
d. a firm that is forced out of business because of losses.
6.
Market failure can be caused by
a. too much competition.
b. externalities.
c. low consumer demand.
d. scarcity.