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Normal Profits: Business, Society and Government

I am having some problems understanding this section of Economics

1. Suppose the Disney Company was experiencing above-normal profits. What would you predict would happen over time?

2. Explain why a proposed merger between Staples and Office Max was not allowed by the Department of Justice?

3. Smokers impose negative externalities on nonsmokers. Suppose the airspace in a restaurant is a resource owned by the restaurant owner.

a. How ould the owner respond to the negative externality caused by smokers?

b. Suppose smokers own the airspace. How would that change matters?

c. If the government gives ownership of the air to nonsmokers, would that change matters?

d. What does a ban on smoking in the restaurant do?

Solution Preview

1. If Disney company is experiencing above normal profits, then other people would see that. Other people would want in on the action and so they would also start businesses similar to Disney's. It will take time to establish the brand name that Disney enjoys but eventually there will be competitors to Disney. When that happens Disney's profits will erode and it will end up earning 0 economic profits. New entrants will keep on entering the industry until everyone earns no economic profits. ...

Solution Summary

The solution is detailed and explains the concepts very well. The solution is very easy to understand as well. All the steps are clearly shown which makes it very easy for anyone to follow. Overall, an excellent response to the question being asked.

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