Managerial Economics

APPLIED PROBLEMS WEEK 5

BOBBI TRIOLO

BUS 640: MANAGERIAL ECONOMICS

DR. BROWNFIELD, INSTRUCTOR

2/6/12

Problem #8, Chapter 11.

Short run profits allow a seller to make as much money as it can, given its costs (raybromley.com). Calculating their profit will allow us to see how well the company is doing. “Profit is calculated by finding the revenues of the firm minus its costs” (raybromley.com).

Since the home remodeling industry is an increasing-cost industry, in the long run, I expect the production costs for the company will increase simply because you need to increase production in order to maintain your profits.

Over time, you are going to have to lower the cost or your services because there are so many companies that will do what you do, the competition will force prices down and you will be a part of a perfect competition industry.

Based on the increased costs of supplies and the decrease in prices charged, profits will be less. No company in the remodeling field is making a huge profit anymore. They are lucky when they break away with enough profit to cover their expenses.

Problem #5, Chapter 12.

“A monopoly exists when a single provider serves the entire market demand at a lower cost combination than two or more specialized firms” (regulationbodyof knowledge.org). Although the merging of these two companies may not cause a monopoly, there is no way you cannot say it would not increase the market power of the joined entity.

That being said, the firm is expected to show how this would not increase their market power for the FTC to deem it a good merger. I think the company need to remind the FTC that Market Power has more to do with the regulation of the cost of items sold, not the size of the company. If this merger goes through, but there are still numerous other small companies or firms that provide the same service, you still have a perfect competition situation. And, anti-trust laws were created to help regulate pricing...