Read and copy the questions and answer comprehensively.

1) For each of the following managers, decide whether the manager is likely to be
a price-setter (possesses market power) or a price-taker (does not possess market
power). (20 points)

      a) The loan officer at a bank decides what interest rate to charge on car
loans made to Chicago-area buyers of new cars

-Price-setter, because in bank loans each company has different types of

services and rates offered therefore it the services they offer could be differentiated
so the managers/administration itself could decide unto which price is to be offered
in the market.
       b) The manager of FastCo Inc., a manufacturer of standardized fasteners,
such as screws and machine bolts.
-Price-taker, since this type of business is included in perfect competition
because stated in the scenario is that they are selling standardized fasterns which
will give us the idea that this type of business is following a certain standard for
their products which implies that they cannot freely state the price they want since
a lot of companies offer the same product as what they could offer therefore they
must adjust their price base on the market price also of other companies.
       c) The CEO of Bombardier, a manufacturer of a popular brand of jet
skis.
-Price-setter, since all over the market there are only few of those companies
who produces jetski since its’ demandability is not that high due to its expensive
price.As a result products of jetsis can be differentiated by those producig
companies with different offers and new features which enables them to have their
own set of price for their product.
       d) The owner-manager of a McDonald’s hamburger restaurant, which is
the first hamburger restaurant to open in a new suburban neighborhood.
- Originally I can say that the manager or th eadministration is a Price-taker
since we all know that the products they are selling is also offered by other
restaurants, but on the other hand the situation clearly says that in their
neighborhood this is the first hamburger restaurant to open. So we could also
say that this organization has the ability to set its wn price sicne they still
don’t have any competitors in the said place where they had put up their
business.
2)  For each of the firms below, identify the market structure that best matches the
competitive characteristics found in that firm’s market. (20 points)
       a) Microsoft Corporation, in the market for business-application software,
such as word processing, spreadsheet, and database.
-OLIGOPOLY MARKET,
       b) Becker Brothers Farms, a 1,000-acre wheat farm near Beaver City,
Nebraska.
- PERFECT COMPETITION
       c) Robo Wash, the only coin-operated car wash in Monroe, Louisiana.
-MONOPOLISTIC COMPETITION
       d) The Jumping Bean, a family-owned Mexican food restaurant in San
Antonio, Texas
-MONOPOLISTIC COMPETITION
       c) Après Ski, one of only two restaurants licensed to operate at the base of the
main ski lift in Park City, Utah.
-OLIGOPOLY MARKET

2. At the beginning of 2011, market analysts expect Atlantis Company, holder of a

valuable patent, to earn the following stream of economic profits over the next five
years. At the end of five years, Atlantis will lose its patent protection, and analysts
expect economic profit to be zero after five years. (40 points)

Expected Economic 
Year                           Profit
1.                   $2,000,000
2.                   $3,000,000
3.                   $4,000,000 
4.                   $5,000,000
5.                   $2,000,000
1. If investors apply an annual risk-adjusted discount rate of 8 percent, the
value of Atlantis Company in 2011 is $__12,635,557_, which is also the
maximum price they would be willing to pay for Atlantis.
2. If investors apply an annual risk-adjusted discount rate of 12 percent, the
value of Atlantis Company in 2011 is $_11,336,860_, which is also the
maximum price they would be willing to pay for Atlantis.
Solution: