Eco320 Week 5 Homework

Chapter 9: Numerical Exercise 11

The banking market in Athens, Ohio currently has four banks with market shares of 60 percent 20 percent, 15 percent and 5 percent. The two smallest banks have proposed merging. Under the standard merger guidelines of the Federal Reserve and the Justice Department, is the merger likely to be approved? Why or why not? In your answer, be as quantitative as possible.

Under the standard merger guidelines of the Federal Reserve and the Justice department, the merger of the two smaller banks would likely be approved. The reason why I say this is because the FED has eased its stance on mergers. In fact, in 1983, the Federal Reserve turned down only one application on competitive grounds -- and in that case, it later allowed the deal to go through. John D. Hawke Jr., former general counsel to the Federal Reserve Board and now a partner in the Washington law firm of Arnold & Porter, said that although the Fed has eased its position on acquisitions, "Applicants are still steering some transactions away from the Fed to other agencies." Many banks consider the Comptroller of the Currency's office to be the more lenient of the two. The Justice Department has issued merger guidelines based on the HHI for banking as well as other industries. The reason why is a collection of smaller banks are far less profitable than their larger competitors and should combine to take advantage of economies of scale. So for my finale answer the smaller banks should merge so that they can also take advantage of the economies of scale.

Chapter 10: Numerical Exercise 11

Suppose that the country of Bigu has a population of 127 million, of which 83 million are in the working-age population. of those, 2.5 million are not in the labor force and 52 million are employed.

Total population = 127 million

Total working-age population = 83 million

Working-age population in the workforce = 52 million

Working-age population NOT in the workforce = 2.5 million...