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Chapter 27: Q.8 (page 621)

Prices of tickets for seats on commercial passenger planes are typically in the hundreds of dollars, whereas trips often can be made by automobile at lower cost. Accident rates per person per trip in the airline industry are considerably lower than auto accident rates per person per trip. Based on these facts, discuss how regulatory costs and benefits may help to explain why government regulations require children to be placed in safety seats in automobiles but not on commercial passenger planes.

Short Answer

Expert verified

As a result, the government enacts legislation that would require youngsters to ride in safety seats.

Step by step solution

01

Introduction.

The state of not being subjected to or causing harm, injury, or loss.

02

Given Data.

The legal advantages of mandating children to wear safety seat belts outweigh those of a commercial passenger airliner. Because of the rising accident rates in the vehicle industry, the government has made seat belt use mandatory. The expense of enacting this legislation is significantly lower than enacting regulations for air passengers.

03

Explanation:

The number of accident deaths can be lowered if youngsters are buckled up in safety seats. This reduction in accident deaths is a regulatory advantage that is more than offset by the expense.

As a result, the government enacts legislation requiring youngsters to ride in safety seats.

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Most popular questions from this chapter

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.

Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.

Understand the foundations of antitrust regulations and enforcement

The table below depicts the cost and demand structure a natural monopoly faces.

a. Calculate total revenues, marginal revenue, and marginal cost at each output level. If this firm is allowed to operate as a monopolist, what will be the quantity produced and the price charged by the firm? What will be the amount of monopoly profit? [Hint: Recall that marginal revenue equals the change in total revenues (P×Q)from each additional unit and that marginal cost equals the change in total costs from each additional unit.]

b. If regulators require the firm to practice marginal cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework? [Hint: Recall that average total cost equals total cost divided by quantity and that profits equal (P-ATC)×Q.].

c. If regulators require the firm to practice average cost pricing, what quantity will it produce, and what price will it charge? What is the firm's profit under this regulatory framework?

Why do you think that many firms with lengthy truck routes now try to recruit married couples to drive their trucks?

Why do you suppose that a growing number of behavioral economists are calling for adoption of more pragmatic approaches to formulating regulations? Explain briefly.

Consider the data from Problem 27-11. Suppose that antitrust authorities have determined that there are separate relevant markets for e-books and physical books. In addition, these authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds 5000 . On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge in either market? Explain.
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