a) Use the model of perfect competition to discuss the following statements (State whether you agree or disagree with the statement):

 “Increasing competition from new firms entering the market is good because it means one is in good business.”

 “One important difference between an entrepreneur and a manager is that the former gets into a market before demand increases while the latter gets into the market after the shift.”

b) My One Sdn Bhd (MOSB) is a monopolist. The demand and total cost functions for its product are:

Q = 60 – 0.4P + 6Y + 2A

Total cost = 1000 + 60Q - 10Q2 + Q3

Where Q = quantity of units sold P = price per unit Y = per capita disposable personal income A = advertising expenditures Y is equal to $3 and A is equal to $3 for the period being analyzed.

i. Derive the firm’s average variable cost function and marginal cost function.

ii. Derive a total revenue function and marginal revenue function for the firm.

iii. Calculate the profit-maximizing level of price and output for MOSB.

iv. What profit or loss will MOSB earn?

v. If fixed costs were $1,200, how would your answers change for (i) through (iv)?

Answer rating: 100% (QA)

a Perfect competition is based on assumption that there are many sellers and buyers and there are no ... View the full answer