HW07 Ch07
HW07 Ch07
7-1
HW07_Q4R_ch07
4. A firm has $1 million in sales, a Lerner index
of 0.65, and a marginal cost of $35, and
competes against 1,000 other firms in its
relevant market.
a. What price does this firm charge its
customers?
b. By what factor does this firm mark up its
price over marginal cost?
c. Do you think this firm enjoys much market
power? Explain.
7-2
HW07_Pb_ch07
18. Several years ago, Pfizer and Warner-Lambert agreed to a
$90 billion merger, thus creating one of the world’s largest
pharmaceutical companies. Pharmaceutical companies tend
to spend a greater percentage of sales on R&D activities
than other industries. The government encourages these
R&D activities by granting companies patents for drugs
approved by the Federal Drug Administration. For
instance, Pfizer-Warner-Lambert spent large sums of
money developing its popular cholesterol-lowering drug,
Lipitor, which is currently protected under a patent. Lipitor
sells for about $3 per pill. Calculate the Lerner index if the
marginal cost of producing Lipitor is $0.30 per pill. Does
the Lerner index make sense in this situation? Explain.
7-3
HW07_Pb_ch07
21. Del Monte has a long and rich tradition in the American
food processing industry. It is perhaps best known for
packaging canned fruits and vegetables. Part of its success
has involved acquiring other brands of canned fruits and
vegetables. Suppose that Del Monte is continuing its
business plan of expansion by acquisition and that the
following table summarizes potential acquisition targets. As
the CEO’s horizontal merger and acquisition advisor, it is
your task to guide the decision-making process. Based only
on the information contained in the table, is a horizontal
merger with one of these companies likely to pass the U.S.
government’s scrutiny and enhance Del Monte’s
performance? Justify your conclusion.
7-4
HW07_Pb_ch07
7-5