Magernial Economics

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Expansion and Merger

Dr. Elkanah Faux
Managerial Economics & Globali ECO 550
February 26, 2012

Explain why government regulation is needed, citing the major reasons for government involvement in a market economy. If we look into the history of the movie industry we will find that the government intervened in the 1940’s in the movie industry. With that intervention it changed the way movies were produced in some critics’ opinion for the worst. Critics will tell you that the quality and content of movies have plummeted when the movie industry is compared with the Golden Age and the way it is today. Producers realized that in order to really make the business as a whole more profitable, that they needed to be able to own and be in charge of the whole production process themselves. (www.mises.org) Over the years the movie industry has changed in the way the American culture has changed. In the beginning movies were wholesome, showing the dynamics of the family just to provide entertainment for families. Overtime the industry started to incorporate sex, violence, and cultural differences just to be able to keep the public interested in the movies that were produced. (www.mises.org)

In the beginning the movie industry used virtual integration to maintain quality, keep the competition at bay and to also stabilize profits. This is when the Justice Department became involved, because then they created the Sherman Antitrust Act. What that basically means that it prohibits business activities that limits competition in the marketplace. Even though the Sherman Act was to help the industry at the time to still is competitive so that everyone in the industry would be able to benefit. (www.mises.org) Every since the movie industry was created it has been steady evolving. For example movies that were made in the 1930’s are more favored than those that were created in the 1950’s. The reason why is because in the 1030’s is when the classics. “The Wizard of Oz”, “Wuthering Heights” and “Casablanca” were made. It is not surprise that critics feel that way because that was before the government intervened to break what they considered to be oligopoly. Because at that time there were no limits to independent theaters, the producers who worked to compete and gain a market share within the industry. This type of regulation was needed because in order to own a theater, 95 percent of the capital was invested into the studio’s capital and the profits themselves. (www.mises.org) Justify the rationale for the intervention of government in the market process in the U.S.

In order for the market process to operate efficiently the government has to become involved in the market process. The reason why the government has to become involved is because they have to set rules and regulations for the movie industry to abide by. When the government gets involved into the marketplace, their role is not to take over but to regulate the functioning of the market economy. (www.usinfo.com) One area of the market economy that the government is indispensable is national defense. In order to make sure that the marketing economy is operating under the right conditions, the government has to make sure that companies are not producing products that might in the long run harm the economy as a whole. By doing this, it allows the government to provide those companies with rules and regulations to abide by. In order for free markets to be able to succeed three conditions must be met. One of them is that the government will allow a company to provide certain goods, as long as the public knows the risks and the private and social responsibility benefits stays the same. The second condition is that the economic activities never suffer externalities and the third condition is that low or high incremental cost production must never occur.(www.rattlesnake.com) These are just some of the conditions that the government needs to be able to...
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