1. Why is constant return to scale incompatible with perfect competition? 2. What is price discrimination? What are the necessary conditions of price discrimination? What companies use price discrimination? 3. Consider the following production function: q = 2/[ +3VK Assume K = 16, derive the marginal product schedule for L. What direction is it moving? b. What returns to scale does the production function exhibit? Explain Let w = $4, r = $2, and K = 16; for the given values of a determine average fixed costs, average variable costs, average total costs, and marginal costs: a. C. L AFC AVC ATC MC a 12 16 13 16 14 16 15 16 16 16 4. "Monopolies perpetuate inflation. When wages rise, a monopoly simply passes on the increased cost in its price. Competitive firms would not be able to do that." Do you agree? What are the differences between how a monopoly and a competitive firm respond to cost increases? 5. The long-run supply curve for gem diamonds is positively sloped because increases in diamond output increase the wages of diamond cutters. Explain why a decision by people to no longer buy diamond engagement rings would have disastrous consequences for diamond cutters but why such a trend would not really harm the owners of firms in the perfectly competitive gem diamond business