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Chapter 11: Q. 7 (page 272)
From the graph you drew to answer Exercise 11.6, would you say this transit system is a natural monopoly? Justify.
The transit system is a natural monopoly.
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Is it true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Herfindahl - Hirshman Index? Explain briefly.
Some years ago, two intercity bus companies, Greyhound Lines, Inc. and Trailways Transportation System, wanted to merge. One possible definition of the market in this case was 鈥渢he market for intercity bus service.鈥� Another possible definition was 鈥渢he market for intercity transportation, including personal cars, car rentals, passenger trains, and commuter air flights.鈥� Which definition do you think the bus companies preferred, and why?
Use Table 11.4 to answer the following questions.
If the transit system were regulated to provide
the most allocatively efficient quantity of output, what output would it supply and what price would it charge? What subsidy would be necessary to ensure this efficient provision of transit services?
What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?
Why can it be difficult to decide what a 鈥渕arket鈥� is for purposes of measuring competition?
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