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WEW-053

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Microeconomics Question from Walter E. Williams:Edit

Give very brief answers to the following:

  • (a) Collusions have a natural tendency to break down.
  • (b) "Bad money tends to drive out good money."
  • (c) To incur a cost is equivalent to saying that one has sacrificed an opportunity.
  • (d) On a television interview a famous theatrical producer expressed delight that tickets to his performance were sold out for the next five months. Explain why he might have cause to be sad instead.

AnswersEdit

  • (a) Competition moves from the market to the boardroom: Collusions have three major reasons for dissolving:
    • 1) incentive to cheat, as different firms have different marginal costs;
    • 2) difficulty in deterring entry of competitors;
    • 3) policing costs
  • (b) WEW-013
  • (c) The cost of any chosen act is the most valuable forsaken alternative opportunity.
  • (d) He could have charged a higher price and still sold out. Advance sell out is an indication that prices were set too low.

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