Tutor profile: Bosede Ngozi A.
Explain six (6) sources of monopoly power.
1. Natural monopoly: some products are by nature have substantial economies of scale in production. 2. Efficiency through economies of scale: declining average cost (AC) and marginal cost (MC) as output increases. 3. Research and technological progress: institutional research may create monopoly power 4. Ownership of essential raw materials. 5. Established firm advantage. 6. Government regulation.
Which of the following can cause an OLS estimator to be biased? Explain. (a) Heteroscedasticity (b) Omitting an important variable (c) A sample correlation of .95 between two regressors included in the model
The answer is (b). Omitting an important variable can cause bias, and this is true only when the omitted variable is correlated with the included explanatory variables. The homoscedasticity assumption (MLR.5) play no role in showing that the OLS estimators are unbiased. Further, the degree of collinearity between the explanatory variables in the sample, even if it is reflected in a correlation as high as .95, does not affect the Gauss-Markov assumptions. Only if there is a perfect linear relationship between two or more explanatory variables is MLR.4 violated.
Clarion has a consumption pattern displayed in Table 1 as: Choices Prices A B C A 46 47 44 B 39 41 46 C 24 22 23 Using the assumption of consistency, identify the consumption bundles that satisfy or violate the weak axiom of revealed preference (WARP). Justify with caution.
Under the weak axiom of revealed preference (WARP), the assumption of consistency and concept of directly revealed preferred (DRP) are used and comparison is between two bundles e.g. A and B, A and C, B and C. Figures in the diagonals are the total cost of the chosen/preferred bundles while those asterisked are affordable but not directly preferred/chosen. Choices Prices A B C A 46 47 44* B 39* 41 46 C 24 22* 23 To show whether WARP is satisfied or violated: Bundle A is DRP to bundle C (WARP is satisfied) Bundle B is DRP to bundle A (WARP is satisfied) Bundle C is DRP to bundle B (WARP is satisfied) Conclusion: WARP is satisfied as Clarion has shown a well-behaved preference evidenced by consistency in choices.
needs and Bosede Ngozi will reply soon.