Chapter 15

Monopoly

How did your understanding of monopolies change after reading this chapter?

I now know that a monopoly is a single firm that owns a key resource and that the government plays a role in the governing of these resources. 

What do you see differently now?

I see how our local governments play their role in governing our public utilities such as gas, electric, water and in Eagle even the phone, internet service has a monopoly. Century Link. 

Give an example of a regulated monopoly (a monopoly that exists due to government fiat).  Why did we choose to give this particular firm monopoly status? 

A natural monopoly such as Holy Cross Electric, It is cheaper for Holy Cross Electric to provide electric to our entire area (entire market) at a smaller cost than allowing two firms to provide electric to our area. 

Do you think it was a good decision?  

I do think that it was a good decision. 

Why or why not?

I think that it was a good decision because our population is considerably small comparative to other areas. I think that our costs as consumers may be lower if there were more competition and that the environmental impacts would be more significant. I don't mind paying more for a service that has less impacts on our environment. If two or even three companies were allowed to provide electric it would impact residents and our wildlife. 

Chapter 14

Firms in Competitive Markets 

Why does a perfectly competitive firm maximize revenues where P=MC? 

Price = Marginal Cost Curve

A competitive firms revenue is proportional to the amount of output it produces. A firm will choose a quantity of output so that the marginal cost revenue equals the marginal cost. They do this to maximize profit.

Why is P=MR in this market type?

Price = Marginal Revenue

If marginal revenue is greater than marginal cost than a firm can increase profit by increasing their production. A firms price will equal its average revenue and marginal revenue.

Name a business you think belongs in this category.  Why? Be sure you think about all of the assumptions about firms in this industry.

When I think of business that belongs in this category, I think of BonFire Brewery. They are competitive to other local brewery's. I have watched their business and production grow from a small tap room to adding an additional larger tap room in the Chambers Commercial Park. They have increased their production to allow for distribution across Colorado. I feel that this local business has used their Marginal cost curve to keep their prices competitive and low, as a result of higher production of their product. 

Chapter 13

The Costs of Production

Why do marginal costs first fall and then begin to rise?

Marginal costs fall at first because of the relationship with the Average total costs. The Average total cost first falls as output increases and then rises as output increases further. The Marginal cost curve crosses the Average cost curve. Marginal cost will rise as quantity of output product produced increases.

Why are marginal costs important to a firm when making decisions to increase or decrease production?

Marginal costs are the increase in the total cost that occurs from extra production. Costs are fixed in the short term and variable in the long run. Firms typically want to maximize profit and they have to analyze the Average costs and Marginal costs to decide the best way to maximize there profit. If Marginal costs increase production costs but do not maximize profits they may decide to decrease production. 

How can you apply these cost concepts to your own life?

The example in our book referring to our grade point average and the relationship between our grade point average and the grade in a particular class would apply to me. Also, I think of my income being a fixed income on a yearly basis but the cost of living is variable such as groceries, gas and services. 

Chapter 12

Now that you have had a chance to think about tax systems which type do you prefer - progressive, flat tax, income, consumption - there are quite a few possibilities.  How do you think the concept of equity or fairness fits into a tax system? Last year Colorado voted on a progressive tax system - the initiative failed and we still have a flat income tax system here (4.63%).  After reading this chapter would you change your vote?

I think that my concept of equity and fairness is similar to what our text reads; Equity, like beauty is in the eye of the beholder. I feel that the vertical equity has more fairness to its concept than the horizontal one.Vertical equity and proportional taxes go together. I would prefer a proportional tax system where everyone pays the same percentage of their income. The proportional is where high income and low income taxpayers pay the same fraction of income. I do not believe that people whom are wealthier than others should have to pay a higher percentage, and I am in the lower tax bracket/poor. People with lower incomes usually use government services more than higher income people. I can see where the regressive tax would come in, but I do not feel that is a fair tax system either.

The reason I feel vertical equity and proportional taxes go together is the fact that taxpayers with a greater ability to pay taxes do pay larger amounts. If you make $100,000 per year your going to pay more money in taxes than someone who makes $50,000 per year, but your both paying the same percentage of your income. So essentially those two systems create a "true" working tax system.

I would not change my vote to a progressive tax system. In our area we receive a lot of taxes from second home owners. Eagle County is fairly wealthy compared to other counties in the state.    

Chapter 11

Think of an example of a Public Good (not a publicly provided good, but a Public Good using the definition from the chapter.)  What are the costs of providing the good?  What are the benefits? Is there another way to have the good provided? Did this chapter cause you to think of Public Goods differently?  In what way?

An example of a Public Good, which is a good that is neither excludable or rival in consumption that I can think of in our local community is the Free Concert series during the summer. For six weeks we have a concert series that exposes local and state bands to our community. The cost is $10,000 from the Town of Eagle to the Vail Valley Foundation. People cannot be prevented from attending the concerts, and enjoying the show. The concerts do not reduce anyone's ability to enjoy other entertainment's.   

The benefits to these concerts are high in our community. The concerts bring small local vendors out to sell their product. The community residents get out to enjoy good music, friends, family and peaceful summer nights. The bands get free exposure to a variety of concert goers for future business potential. 

The good could be provided as a ticketed/paid for individually event. It could become a private event but that would lower the communities greater good. 

Working for a small local government, I enjoyed reading the bit in our book regarding "How much a life is worth"? It has made me wonder if our elected officials think of the value of a human life when approving construction projects at budget time. I think I will make a copy of it and paste on our bulletin board for random reading pleasure at work. 

Chapter 10

What is your favorite example of a negative externality?  Could the problem be solved via negotiation (Coase Theorem)?  How or why not? Do you favor regulation to solve this externality?  Why or why not?  

I do have a favorite example of a negative externality. I did a research paper a few semesters ago on Factory Farming and its effects on the environment. The effects of Factory Farming on our environment and public health is enormous and our society is blissfully unaware. The waste run off from the animals before slaughter contaminates our ground water and nearby rivers; not forgetting to mention the waste from the slaughter itself. They have what they call lagoons that store and treat the waste before they release it into the nearby water ways. These lagoons frequently leak and overflow which causes toxic waste to flow into the surrounding areas before it is treated. Air pollution from the waste and the smells from the slaughter causes neighboring communities to suffer. I really could go on and on. There is constant litigation, and negotiations taking place but the reality is they are ineffective to the problem and the demand for meat in this country continues to increase. The problem is not being solved. 

Yes, I favor a regulation to solve this externality. The public might not like me very much after I say this but I would propose a $5-$10 (extreme, I know) environmental impact fee for every single fast food purchase made; every single restaurant in the country that purchases meat from large corporate farmers. Every single consumer of fast food/restaurants would have to pay this fee which would go directly to the area's that are impacted by the Factory Farms. I think it is time that people take accountability for there consumerism and pay for the impact of those purchases. If you love Big Mac's well then pay for what it costs to produce it. I would be willing to pay the fee, but I sure would cook from home more and shop from farmers that are more environmentally conscientious.  

We live in a county that throws away so much food, and the animals slaughtered at such an alarming rate......we need to educate our children and ourselves about this problem. Money is a way to always get people to pay attention and maybe take action for change.