1. (a) Discuss (in detail) why the knowledge of the market structures (perfect competition, monopolistic

completion, and monopoly) is important to a business manager.

(b) Suppose you manage a perfectly competitive firm that currently earns a normal profit (zero economic profit) in the short run and you recently learned that the overall market supply of your product will increase by 10% while the overall market demand for your product will remain unchanged. Graphically illustrate and explain how the anticipated change in the overall market supply of your product will impact your future profit maximizing levels of output and price in the short run.

(c) Suppose your perfectly competitive firm's cost function is C(Q) = 60 + 15Q + 3Q², where Q is output, and your competitors charge a price of $50 per output. Clearly show your steps and (i) derive your firm'sshort-run profit function and (ii) with the derived profit function, calculate your firm's profit-maximizing output and price in the short-run.

(d) Given the firm's cost function in (c) above, clearly show your steps and (i) derive your firm's short-run

supply function and (ii) manually draw the firm's short-run supply curve.

1. Points)
2. (a) Compare and contrast the long-run equilibrium conditions for a perfectly competitive firm and a

monopolistically competitive firm.

(b) Carefully explain why advertising is important or not important to your fast-food restaurant.

1. points)

3. (a) Discuss the differences between a monopolistic industry and a monopolistically competitive industry.

(b) Suppose you manage a rural electric (utility) firm in Georgia, USA, and your firm is the only supplier of

electricity in the county. Assume that the market demand function for electricity in your county is

Q = 675 - 500P and the cost function of electricity produced by your electric firm is C(Q) = 120 + 0.15Q, where Q is the quantity demanded or produced (output) and P is the unit price. Clearly show your steps and determine the short-run profit-maximizing output and price of electricity by your electric firm.

1. Clearly show your steps and determine the own-price elasticity of demand at the short-run profit-maximizing levels of output and price in (b) above.

1. Carefully explain why your estimated price elasticity of demand in (c) above is reasonable or not.

1. Points)

4. (a) Suppose you are a manager of a Hospital System with two medium size hospitals in Southwest Georgia.

Under your management, the weekly inverse demand for medical services at both hospitals is P = 1,200 - 4Q, where Q = Q₁ + Q₂; Q₁ is the quantity of medical services provided at hospital1 and Q₂ is the quantity of medical services provided at hospital2. The cost function of medical services at hospital1 is C(Q₁) = 8,000 + 6Q₁² and at hospital2, C(Q₂) = 6,000 + 3Q₂². Clearly show you steps and determine your HospitalSystem's short-run profit maximizing output (Q) and price.

1. Discuss two economic factors that could enable your hospital system to maintain monopoly power in its domain. 

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