Managerial Economics and Globalization - ECO 550
Week 1 Problem Set

Jason Hanson

1. In each of the following examples, discuss which market model appears to best explain the behavior described:
a. Dry weather unexpectedly cut the 2003 soybean harvest by 15 percent, making it the smallest harvest in seven years. China increased its demand for soybeans, acquiring a record 300 million U.S bushels between September 2003 and April 2004. The Bush administration expected that U.S farmers would respond to the high prices by planting more soybeans in the next cycles.

Perfect Competition Model, this model illustrates the perfect market. One producer does not change the market by his self, but as a whole there can be great changes.

b. In spring 2004, General Motors launched another round of discounts, offering zero percent financing for five-year loans and $1,000 additional givebacks to customers. Following GM's move, Ford increased rebates on certain pickup models from $1,000 to $1,500, while DaimlerChrysler announced that 2005 minivans would come with a $1,000 rebate.

Monopolistic Competition Model, Each company has some change on the market but neither company has total market power.

c. In spring 2004, the U.S. wireless telecommunications industry hoped that mergers among firms would decrease the number of rivals and eliminate cutthroat competition. However, the wireless carriers faced new challenges from new technologies and a rush of new entrants into the market. Unlike their counterparts in the traditional phone industry, wireless companies never enjoyed a period of monopoly status.