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Baseballer02 wrote:Have to write a two-page essay for micro-economics, 10% of my grade. Not that hard of an essay but I've got a major headache. What I'm looking for is people's opinions on the following discussion questoins.
1)Suppose a firm invents a technology that reduces its costs so far that it can drvie all of its competitors out of business, even though the price that maximizes the firm's profits is well above its marginal costs. Would consumers be better off if this firm was forbidden from introducing its cost-saving technology?
If you have to write a 2 page paper on these 4 questions, that shouldn't be a problem! If not, I would pick question 1 or 4, or 3, since your prof would be impressed that you actually understand the question. Anyhow, my guess is that the consumers would definitely be better off in the short run, but the long run is not so certain. In the short run, obviously lower prices benefit the consumer. In the long run, when the firm becomes a monopoly, it depends on the barriers to entry, whether or not a firm can come in when the monopolist raises the prices too much.
Also, I don't see how the firm can be forbidden to introducing this technology. Maybe I am not getting this.
2)Some music groups are in favor of allowing people to distribute their songs at no charge through P2P networks, while other are strongly opposed. Can you suggest why there are these differences?
It seems like just a matter of what the bands think. For example, The Offspring might have even suggested putting their new song(s) out on kazaa/napster some years ago, if I remember correctly, and that is because they feel that that is a good way to introduce it to the most number of people. U2 on the other hand, don't like sharing their music, because they "worked hard for it", and thus would rather make a deal with i-pod to sell special edition U2 i-pods...
3)Are the network effects present with the Internet fudamentally any different from those present with telephone systems or even from old-fashioned 3.5-inch disk drives and diskettes?
4)Some people argue that copyright protectoin and patent protectoins should be abolished, because the owners of patents and copyrights are effectively monopolists when it comes to supplying the goods for which they have these rights. What do you think would happen to the rate of innovation if patents and copyrights were abolished? What would be the likely impact on the well-being of consumers?
They CanNOT be abolished. This is just too simple, without any protection, why would someone invest a lot into researching, only to have his/her glorious invention copied just like that. However, monopolists certainly isn't great, but at least some form of reward must be given to the inventor. The consumers are definitely better off paying a higher price for something wonderful, than not even having the chance to get this something wonderful. At least patents have an expiry date.
Baseballer02 wrote:1)Suppose a firm invents a technology that reduces its costs so far that it can drvie all of its competitors out of business, even though the price that maximizes the firm's profits is well above its marginal costs. Would consumers be better off if this firm was forbidden from introducing its cost-saving technology?
LBJackal wrote:So bottom line: if the longrun price that consumers are paying is lower, then they are better off, so long as the amount supplied (in the case of a monopolist) remains at a level that keeps total consumer surplus higher than the consumer surplus in the perfectly competitive market. It's all about the consumer surplus - they're better off with the more consumer surplus there is (that's the definition of "better off" in microeconomics). That might mean paying a higher price if the producer is willing to supply a greater amount, it really depends on the specifics. For example say they use the new technology and charge $10 per unit when the old price was $200 per unit. If the only firm left is onyl selling 100 of those units, and before they implemeneted the new technology, there were 10,000 units supplied, then the consumer surplus is probably going to be lower even though the price is $180 cheaper, since 9,900 people are without the good even though it costs less.
And sorry if I confused you, that's a pretty big mess of words and after going over it I'm kinda confused myself
LBJackal wrote:Yes if the monopolist could do that..... they probably would. But if selling 100 items at $10 brings economic profits, and anything mroe than that doens't, then they'll choose the package that provides economic profits. For most goods that isn't likely, since marginal cost of production usually drop as you use more of them, but it's possible to have the situation I gave as the profit maximizing level. Economic profits include opportunity costs so if the resources could be better used in another market, they will be. The firm would probably charge more than $10 per unit if they only produced 100 of them, but not in all cases. Demand does not always increase when price decreases.
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