ManEconCh16 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  16 Government and Business
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
OBJECTIVES Ensure that managers understand the legal  environment of business Antitrust laws Fair trade laws Employment laws Safety laws Environmental issues and laws Securities laws Patents and copyrights
Background image of page 2
OBJECTIVES Ensure that managers understand the role of  government in the business environment Economic regulation (banks) Noneconomic regulation (safety) Tax and subsidy policies Price controls Spending Infrastructure maintenance Controls in cases of market failure (externalities like  pollution)
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
COMPETITION VERSUS  MONOPOLY According to economists, and the U.S. Supreme  Court, competition is generally preferable to  monopoly because it results in a better allocation  of resources. In the United States, commissions like the FCC  regulate the behavior of monopolists. Antitrust  laws are meant to promote competition and control  monopoly.
Background image of page 4
COMPETITION VERSUS  MONOPOLY Global policies are often ambiguous with regard to  promoting competition. The United States also promotes monopoly with  patents, licenses, and copyrights.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
REGULATION OF MONOPOLY Monopolies that exist because of economies of  scale (natural monopolies) are often regulated.
Background image of page 6
REGULATION OF MONOPOLY Example: Acme Water Company Figure 16.1: Regulation of Acme Water Company: Maximum  Price Without regulation, price = P 0  and output = Q 0 With regulation that sets a maximum price of P 1 , output is  equal to Q 1 . Figure 16.2: Regulation of Acme Water Company: Fair Rate  of Return Price is set equal to P 2 , where average total cost is equal to  demand. Valuation based on a fair rate of return involves  controversies.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
THE LONE STAR GAS  COMPANY: A CASE STUDY The Lone Star Gas Company requested a price  increase in 1978. Regulatory commission determined the value of capital based on historical cost and  depreciation was $185 million. the weighted average cost of capital was 11.1 %. profit should therefore be (.111)(185) = $20.535 million. because actual profit was $9.8 million, the rate increase  was granted.
Background image of page 10
EFFECTS OF REGULATION ON  EFFICIENCY Regulated monopolies are guaranteed a fair  rate of return no matter how poorly they are  managed. Managers have no incentive to  increase efficiency.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 64

ManEconCh16 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online