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Section+Exercise+10+solns

Section+Exercise+10+solns - 2011 ,Berkeley Doraiswamy...

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Department of Economics               Spring  2011 University of California, Berkeley         Economics 1    Head GSI: Swetha  Doraiswamy Section Exercise 10 For 3/3/11 & 3/7/11 1.  Each of the following firms possesses market power.  Explain its source.    a.  Merck, the producer of the patented cholesterol lowering drug Zetia    Merck has a patent for Zetia. This is an example of a government-created barrier to  entry, which gives Merck market power. b.  Verizon, a provider of local telephone service  There are economies of scale in the provision of local telephone service. There is a  large fixed cost associated with building a network of copper cables to each  household; the more telephone calls Verizon produces, the lower its average total  cost becomes. This gives Verizon a cost advantage over other companies. This cost  advantage gives Verizon market power. c.  Chiquita, a supplier of bananas and the owner of most banana plantations    Chiquita controls most banana plantations. Control over a scarce resource gives 
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