C1: PERFECT COMPETITION ..20 points. Suppose we have many firms each with an individual supply curve...
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C1: PERFECT COMPETITION ..20 points. Suppose we have many firms each with an individual supply curve of q = 2 P. Assume that firms have a quasi-fixed cost of $4,000 (that is COST = 0 if they shut-down but COSTS = 4,000 + % q if they are open). Individual demand is q= 300-3 P (4 points) (a) Let there be n = 500 firms and m = 1000 consumers. What is the equilibrium market price (P), output per firm (qs), and consumption per consumer (qd) given the fixed number of firms? Show and explain. (3 points) (b) Find each consumer's Consumer Surplus. Show your work. (3 points) (c) Find profits per firm. What does this imply for entry/exit decisions? Show your work. (5 points) (d) Now let the number of firms change so that each firm's profits are zero. How many firms will there be in long-run equilibrium? Show and explain why the long-run equilibrium price is $63.25. (5 points) (e) Now suppose the quasi-fixed costs fall to $3000. Show and explain what happens to long-run equilibrium price and number of firms. Explain the idea behind the result. C2: MONOPOLY and OLIGOPOLY. ..20 points. Suppose a monopolist has the following cost function C(Q) = 50Q (with marginal cost = 50). Suppose it faces market demand of P = 150-% Q. (2 points) (a) Sketch market demand, marginal revenues, and marginal costs. Be neat. (4 points) (b) What is the monopolist's optimal level of output, price, and profits? Show your work. (4 points) (c) What is the deadweight loss (DWL) associated with the monopoly output? Show your work and explain why the DWL arises. (3 points) (d) (Cournot Competition) Now suppose we added a second firm that has identical costs to the monopolist. Show that the resulting Cournot Equilibrium has each firm producing output of 133.33 units. That is, show that, if the other firm sells 133 units, then the best a firm can do is also sell 133 units. (4 points) (e) What are total profits under Cournot Competition compared to the Monopoly case? Why do they differ? (3 points) (f) What happens to the deadweight loss under Cournot Competition relative to the Monopoly case? Explain why this happens. C1: PERFECT COMPETITION ..20 points. Suppose we have many firms each with an individual supply curve of q = 2 P. Assume that firms have a quasi-fixed cost of $4,000 (that is COST = 0 if they shut-down but COSTS = 4,000 + % q if they are open). Individual demand is q= 300-3 P (4 points) (a) Let there be n = 500 firms and m = 1000 consumers. What is the equilibrium market price (P), output per firm (qs), and consumption per consumer (qd) given the fixed number of firms? Show and explain. (3 points) (b) Find each consumer's Consumer Surplus. Show your work. (3 points) (c) Find profits per firm. What does this imply for entry/exit decisions? Show your work. (5 points) (d) Now let the number of firms change so that each firm's profits are zero. How many firms will there be in long-run equilibrium? Show and explain why the long-run equilibrium price is $63.25. (5 points) (e) Now suppose the quasi-fixed costs fall to $3000. Show and explain what happens to long-run equilibrium price and number of firms. Explain the idea behind the result. C2: MONOPOLY and OLIGOPOLY. ..20 points. Suppose a monopolist has the following cost function C(Q) = 50Q (with marginal cost = 50). Suppose it faces market demand of P = 150-% Q. (2 points) (a) Sketch market demand, marginal revenues, and marginal costs. Be neat. (4 points) (b) What is the monopolist's optimal level of output, price, and profits? Show your work. (4 points) (c) What is the deadweight loss (DWL) associated with the monopoly output? Show your work and explain why the DWL arises. (3 points) (d) (Cournot Competition) Now suppose we added a second firm that has identical costs to the monopolist. Show that the resulting Cournot Equilibrium has each firm producing output of 133.33 units. That is, show that, if the other firm sells 133 units, then the best a firm can do is also sell 133 units. (4 points) (e) What are total profits under Cournot Competition compared to the Monopoly case? Why do they differ? (3 points) (f) What happens to the deadweight loss under Cournot Competition relative to the Monopoly case? Explain why this happens.
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Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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