Question

We Act * " E 2119 AaBbcc AaBb De AaBbc AaBbcc AaB AaBbce. 1 No Spact Heading1 Heading 2 Title Subtitle Normal Paragraph Styles Several states have set the minimum wage in their states higher than the federal minimum wage. If doing so places them at a competitive disadvantage for new business this might be counterproductive. On the other hand, the minimum wage is typically relevant only in low-paid service jobs. Who makes the minimum wage in your community? b. Would your community be better off with a higher minimum wage? c. One of the principal opponents to minimum wage increases is the umbrella organization for small business. Many states with higher minimum wages than the federal level exempt businesses with few employees, Should small businesses be exempt from minimum wage laws? d. Imagine an owner of a firm is thinking about raising prices. Describe the consequences of doing so as a monopolist, oligopolist, monopolistic competitor, and perfect competitor. What are the key differences between monopolistic competition and perfect competition? I Think about This: One of the concerns about Walmart's entry into the grocery business in the latter part of the 1990s was that it would set low prices, drive little stores out of business, and then raise prices to monopoly levels when it had no competition. Can you explain why it has not happened?

Answer 1

a) In general the minimum wage is actually earned by the semi-skilled and labors who require a certain level of income to make sure that they can get through their living.

b) A higher minimum wage is any day better, the community will be better off, as there will be increased income, incrreased purchasing power and more over increased standard of living.

c) When a small business is exempted from minimum wage laws, they tend to make more profit for the following reasons:

1. They have lesser labor force, and hence they tend to exploit the resources a lot.

2. With minimum wage not being a problem, they cut down on employee compensation and earn high profits.

Hence in this case, they can very well, earn a lot but still be considered as "small businesses". Instead of the number of employees, the profit making should be the important factor to exempt the business from minimum wages.

d) 1) Monopolist: As a monopolist, the firm is already the price maker, the firm has brand loyalty of the consumers and least competition which will only lead to him gaining super normal profits.

2) Oligopoly: As an oligopolist, just like the monopolist the cartel made is suppose to decide the pricing, or in some cases the market demand. The first consequence will be discussing this idea of price increase from all the firms in the industry. The second will be to see if the demand is worth raising the price. While there is less competition, there are chances that cartels might break.

3) Monopolistic Competition: In this market type there are many buyers and seller, and the product type is heterogeneous. The prevailing substitutes in the market is abundance and henc when there is increase in the price, the consumers might shift to other brands.

4) Perfect Competition: Here the firm is the price taker and with homogenoeus product it becomes difficult to raise the prices of the products.

e)In a monopolistic competition a product is always priced higher than its marginal cost. The fact is monopolistically competitive market can never achieve productive or allocative efficiency. Because monopolistic firms set prices higher than marginal costs, consumer surplus is significantly less than it would be in a perfectly competitive market. While Monopolistic competition is more or less possible the idea of perfect competition does not always prevail. Monopolistic competition is a price maker while the perfect competition is a price taker.

f) The fact that the concerns have not been achieved is the amount of consumers that were actually involved in the purchases from the little shops. Also, walmart did not put it's centers at every place, the lack of spread can also be one the reason. There might be other causes such as the lack of infrastructure. Also, the competition of walmart was not with one single brand or single small business but clusters of it which were already existing and known among all the economic groups.