1. Identify two products that have either fallen sharply in price or gotten significantly better without price increases. Explain why. Food and homes are two products that have either fallen sharply in price because of high unemployment and meager wage growth. 2. If an oligopolist knows rivals will match a price cut, would they ever reduce their price? Oligopolists sometimes engage in price competition when other attempts to gain market share fail. The result is lower prices, increased output, and smaller profits. Since price competition is typically self-defeating in an oligopoly, rival firms usually attempt to differentiate their product to gain market share.
3. Dominos and Pizza Hut hold 66 percent of the delivered-pizza market. Should antitrust action be taken? Dominos-Pizza Hut merger resulted in a HHI value greater than 1800, so under the guidelines the merger could be challenged. However, if the industry behaves competitively with low entry barriers, antitrust action may be unnecessary.
4. How would our consumption of cereal change if cereal manufactures stopped advertising? Would we be better off or worse off? If cereal manufacturers stopped advertising, there would probably be less variety available. This reduction in variety and advertising could reduce the product price, however, the reduction in variety would likely lead to less total satisfaction from the consumption of cereal.
5. Why are people willing to pay more for Dreyer's ice cream when it has a Starbucks brand on it? Some people associate a certain taste or quality with the Starbucks name. If Breyer’s included this name on some of its ice cream, some consumers would be willing to pay extra for the added...