Please see the attached file.
Homework 7&8 (7) 1. In January 2007, XM enjoyed about 58 percent of satellite radio subscribers, and Sirius had the remaining 42 percent. Both firms were suffering losses, despite their dominance in the satellite radio market. In 2008, the Department of Justice decided not to challenge a merger, and these two firms united to become Sirius XM. (a) What is the 4-firm concentration ratio before the merger for the satellite radio industry? Please show your calculations (b) What is the Herfindahl-Hirschman index before the merger for the satellite radio industry? Please show your calculations. (c) What is the 4-firm concentration ratio after the merger for the satellite radio industry? Please show your calculations (d) What is the Herfindahl-Hirschman index after the merger for the satellite radio industry? Please show your calculations. (e) Explain why, even with your answers to (c) and (d), the government still approved the merger. 2. (a) A Herfindahl index of 10,000 suggests what type of a market? Please explain. (b) A student figured out that the HHI for an industry was 15,000. What is the proper conclusion about this number for the HHI calculated by the student? Please explain. 3. The widget industry is comprised of six firms of varying sizes. Firm 1 has 35 percent of the market. Firm 2 has 25 percent, and the remaining firms have 10 percent each. (a) What is the Herfindahl-Hirschman index for the widget industry? (b) What will be the change in the Herfindahl-Hirschman index if there is a merger between firms 5 and 6? Please show your calculations. 4. Del Monte has a long and rich tradition in the American food processing industry. It is perhaps best knows for packaging canned fruits and vegetables. Part of its success has involved acquiring other brands of canned foods and vegetables. Suppose that Del Monte is continuing its business plan of expansion by acquisition and that the following table summarizes potential takeover target. Based only on the information given in the table, is a horizontal merger between Del Monte and one of the firms in the table likely to meet any opposition from the government? You may assume that Del Monte is currently already present in the markets for Canned tomatoes and Canned pineapple even before the merger. It is not necessary to calculate C4 or HHI or calculate changes in C4 and HHI, but you have to explain how C4 and HHI could change as a result of the merger, based on the information given in the table. You must give an explanation. (8) 1. Manufacturers of laundry detergent and dishwashing soap reinvest a relatively large percentage of their sales revenues on advertising campaigns. Most of these advertisements that appear on television stress the fact that their product is "New and Improved." What sort of a market (perfectly competitive, monopoly, monopolistically competitive) is laundry detergent and why are the firms advertising? Please give an explanation. 2. You are the manager of a small U.S. firm that sells nails in a perfectly competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundred of other firms). You are concerned about two events you recently learned about through trade publications: (i) the overall market supply of nails will decrease by 2 percent due to the exit by foreign competitors, and (ii) due to a growing U.S. economy, the overall market demand for nails will increase by 2 percent. Based on this information, should you plan to increase or decrease your production of nails in the short run? Please explain. 3. The second largest public utility in the nation is the sole provider of electricity in 32 counties of southern Florida. To meet the monthly demand for electricity in these counties, which is represented by the estimate inverse demand function P = 1,200 – 4Q, marginal revenue function is MR = 1,200 - 8Q, the utility company has set up two electricity generating facilities: Q1 kilowatts are produced at facility 1 and Q2 kilowatts are produced at facility 2 (so Q = Q1 + Q2). The costs of producing electricity at each facility are estimated as C1(Q1) = 8,000 + 6Q12 and MC1 = 12Q1 and C2(Q2) = 6,000 + 3Q22 and MC2 = 6Q2, respectively. Determine the profit maximizing amounts of electricity to produce at the two facilities, the optimal price, and the utility company’s profits. Please show your calculations.