What is the appropriate interest of government when intervening in markets to correct market failure? Give an example of a market failure that we have attempted to correct through public policy.

What is the appropriate interest of government when intervening in markets to correct market failure?  Give an example of a market failure that we have attempted to correct through public policy.  For your example, how was the public policy supposed to make society better off?  How well did that policy work?

Define “government failure” and give an example.  Your example can be historical or hypothetical.

For a beach-side rental house, the cost to the owner to supply the house consists of their mortgage payment of $20,000 per year and cleaning/maintenance costs of $500 per week that it is rented.  In-season demand is given by P = $7,000 – $400*RW, where P is the price per week and RW is the number of rental weeks.  The season starts in June and ends the first week of September for a total of 12 possible rental weeks.

If this is the only house of this type, what should the owner charge?  How many weeks is the house rented?  How much are the revenue, cost, and profit?

Now assume that there is also off-season demand given by P = $1,000 – $100*RW.  How much should the owner charge for off-season rentals assuming that it will have no effect on in-season demand?  How many off-season weeks get rented?

The beach board of supervisors has proposed that those offering their houses for weekly rentals must charge the same price throughout the year.

·        What would be the effect for this rental homeowner?

·        What problem is the board of supervisors trying to correct?

·        Fully explain why you would advise them to implement their proposal or not implement their proposal.

What is the purpose of every firm?

To calculate the current ratio, we divide current assets by current liabilities.  What is a normal range for the current ratio?  What does a current ratio that is “too low” indicate?  What does a current ratio that is “too high” indicate?

Explain the difference between liquidity and solvency.

If a firm’s Debt to Equity ratio is twice the average of its competitors’, what does that potentially indicate about the firm?

There are two auto manufacturers in Crypta, F1 and F2.  They each only produce one type of car and the cars are essentially identical between the two firms.  The market demand is given by p = 25 – 0.1*Q, where p is the price (in the Cryptan currency called “cryps” whose symbol is Ͼ) and Q is market output in thousands of cars.  Both F1 and F2 have a marginal cost of Ͼ10,000 per car.

Competition in the Cryptan auto market works as follows.  At the beginning of each year, both firms simultaneously and independently decide how many cars to produce.  Then the market price adjusts so that supply equals demand and the market clears.

Determine the equilibrium number of cars produced each year for each auto manufacturer in Crypta and the market clearing price.

There are six bars in town.  All of them charge the same amount for mixed drinks.  All of them charge the same amount for beer and wine, but that amount is less than the mixed drink price.  The district attorney has accused the bars of acting as a cartel.  What more information would you need to conclude whether or not the district attorney is correct?

The market shares for the top five aircraft engines for commercial jets are listed below.  Calculate the four-firm concentration ratio and the Hirschman-Herfindahl Index.

CFM 39%

Pratt & Whittney 26%

Rolls Royce 18%

General Electric 16 %

International Aero Engines 1%

If two of these firms proposed to merge, would it be allowed under US Department of Justice guideline