Q1. What is systems engineering and how has Elon Musk applied systems engineering to cut costs and increase profits? Are Musk’s innovations subject to competition, copycats, and creative destruction? Over the long run, how can Musk continue to generate economic profits?
Q2. U.S. pharmaceutical companies charge different prices for prescription drugs to buyers in different nations, depending on elasticity of demand and government-imposed price ceilings. Explain why these companies, for profit reasons, oppose laws allowing re-importation of drugs to the United States.
Q3. It has been proposed that natural monopolists should be allowed to determine their profit-maximizing outputs and prices, and then government should tax their profits away and distribute them to consumers in proportion to their purchases from the monopoly. Is this proposal as socially desirable as requiring monopolists to equate price with marginal cost or average total cost? Explain.
Q4. Why is there so much advertising in monopolistic competition and oligopoly? How does such advertising help consumers and promote efficiency? How does advertising promote inefficiency?]
Q5. Why do oligopolies exist? List five or six oligopolists whose products you own or regularly purchase. What distinguishes oligopoly from monopolistic competition?
PLEASE PARAPHRASE THE BELOW ANSWERS
Systems engineering is a transdisciplinary and integrative technique that uses systems principles and concepts as well as scientific, technological, and management methodologies to enable the successful realisation, use, and retirement of systems.
Elon Musk has applied this idea to give every division and employee in his business a solid grasp of high level ideas. This aids him in improving the productivity of his workers and producing greater results.
Musk strives to think outside the box rather than following the established norms and laws, therefore his creations are not subject to the aforementioned limitations.
He can invest in projects with solid promise in the long run while also expanding his home business.
Reimportation is the importation of goods into a country which had previously been exported from that country.
Since some companies charge different prices for their products to buyers in different nations, a number of legal issues arise with the reimportation of these products, particularly where the goods were not designed for sale in the country from which they were initially exported.
U.S. pharmaceutical companies oppose laws allowing reimportation of drugs to the United States because prices of their prescription drugs differ from one country to another, as a reimporter may purchase the drugs in another country where they are sold at a low price and reimport them in order to undercut the price of drugs in USA. Such reimported drugs may constitute black market for the drugs, which would negatively affect the pricing policy of U.S pharmaceutical companies and thereby their profits would fall.
No, the proposal does not consider that the output of the natural monopolist would still be at the suboptimal level where P > MC. Too little output would be produced and there would be an under allocation of resources. Theoretically, it would be more desirable to set a price ceiling and force the natural monopolist to charge a price equal to marginal cost and subsidize any losses. Even setting price equal to ATC would be an improvement over this proposal. This fair-return pricing would allow for a normal profit and ensure greater production than the proposal would.
Monopolistically competitive firms maintain economic profits through product development and advertising. Advertising can increase demand for a firm’s product. An oligopolist would rather not compete on a basis of price. Oligopolists can increase market share through advertising financed with economic profits from past advertising campaigns. Advertising can act as a barrier to entry.
Advertising provides information about new products and product improvements to the consumer. It may result in an increase in competition by promoting new products and product improvements. Advertising may result in manipulation and persuasion rather than information. An increase in brand loyalty through advertising will increase the producer’s monopoly power. Excessive advertising may create barriers to entry into the industry for other firms.
The biggest reason why oligopolies exist is collaboration. Firms see more economic benefits in collaborating on a specific price than in trying to compete with their competitors. By controlling prices, oligopolies are able to raise their barriers to entry and protect themselves from new potential entrants into the market. This is quite important, as new firms may offer much lower prices and thus jeopardize the longevity of the colluding firms’ profits.
List of five oligopolies:
An oligopoly market is a market where a few firms sell similar or identical products such as the airline industry. Monopolistic competition is a market where many firms sell similar but not identical products such as smartphones business.
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