Economics 100A Prof. McFadden Fall 2001 Due the week of 11/26/01. Answer Key to Problem Set #11


 Clinton Allison
 1 years ago
 Views:
Transcription
1 Economics 100 Prof. McFadden Fall 01 Due the week of 11/26/01 nswer Key to Problem Set #11 1. Currently, there is an incumbent monopoly in the market. Next year, a potential entrant may. The incumbent needs to make a decision on whether or not it should spend $50 to lobby the government into passing legislation which places a lumpsum tax of $100 on the potential entrant if it s. If the potential entrant stays out of the market it makes zero profit and the incumbent firm makes a monopoly profit, π m >0, minus expenditures on lobbying if any ($50 or $0). If the potential entrant s the market, it gets duopoly profit, π d $0, minus the tax if any, and the incumbent gets duopoly profit minus the lobbying costs if any.. Show the game in extensive form. What strategies will be played? The following game tree describes the sequential move game. Generally, let T equal the lumpsum tax and b equal the lobbying expense): Incumbent Lobby lobby Entrant Payoffs: Incumbent: π d b150 π m bπ m 50 π d 0 π m Entrant: π d T100 0 π d 0 0 If the incumbent lobbies, the entrant still finds it profitable to (100>0). nd if the incumbent knows this, it will not lobby since 0>150. Therefore, the strategies played are "don't lobby" by the incumbent and "" by the entrant, yielding payoffs of $0 for each participant.. Suppose the tax on the potential entrant is $210 instead of $100. Repeat part. How large must π m be for the monopolist to want to lobby? Now the entrant will stay out of the market if the incumbent lobbies (10<0). So the incumbent can make "π m 50" if it lobbies, and "0" if it does not (when it doesn't, the entrant s and the incumbent therefore makes duopoly profit). For the incumbent to want to lobby, π m 50>0, or π m >250. The game tree is shown as follows: Economics 100 Page 1 Problem Set 11
2 Incumbent Lobby lobby Entrant Payoffs: Incumbent: 150 π m π m Entrant: Consider a market in which two firms produce a homogeneous product. Market demand is given by Q d (P)0P. The cost functions for firm and firm are TC a (q a )5q a and TC b (q b )0.5q b 2, respectively.. Find the Cournot equilibrium quantities supplied by each firm. Graph your result using reaction functions. Find the market price, and calculate profits for each firm. To determine the Cournot equilibrium, we first calculate the reaction function for each firm. Firm 's residual demand is P0q a q b and MR a (0q b )2q a. y equating MR a and MC a and rearranging, we get q a q b, 's reaction function. Similarly for, MR b (0q a ) 2q b MC b q b. Rearranging, we get q b q a, 's reaction function. With two equations and two unknowns, we substitute for q b in 's reaction function to solve for q a. q a ( q a ). q a 77 Substituting q a into 's reaction function gives us q b 41. The following graph of reaction functions shows exactly where the Cournot equilibrium is located: 195 's reaction function q b Cournot eq. 41 's reaction function 77 0 q a Economics 100 Page 2 Problem Set 11
3 Substituting q a and q b into the demand equation gives us the market price: P P$82 Finally, find firm profits: π a (82)(77)[5(77)]$5929 π b (82)(41)[0.5(41) 2 ]$ Now suppose that firm chooses how much to produce before firm does (i.e. firm is a Stackelberg leader, a follower). Calculate quantities, market price and profit for each firm 1. Firm will choose its output q a to maximize its profits, subject to the reaction function of Firm. That is, faces demand P0q a q b, but it also knows 's reaction function. We can plug that into the demand faced by. P0q a [66.67(1/3)q a ] (2/3)q a 's MR is therefore: MR a (4/3)q a. Setting MR a MC a gives (4/3)q a 5, or q a Substituting q a into 's reaction function gives q b P π a (69.2)(96.25)[5(96.25)]$ π b (69.2)(34.58)[0.5(34.58) 2 ]$1795. C. Now consider the case where total social welfare is maximized. Find market quantity, quantities supplied by each of the two firms, and market price. Total welfare is maximized when the price is equal to the marginal cost (the competitive equilibrium where market demand equals market supply). Market supply is a horizontal sum of each firm's supply curve. Firm 's supply curve is P5 since MC a C a 5 and Firm 's supply curve is Pq b since MC b q b. Thus market supply is PQ s for Q<5 and P5 for Q>5. Under perfect competition, Q s Q d. Using the inverse demand equation we find 0Q5, yielding a total quantity Q195 and P$5. Since 's costs are lower for quantity <5, produces the first 5 units of output and produces the rest. If Firm produces all of the output alone there will be no producer surplus and we lose the surplus that can be obtained by allowing Firm to produce 5 units of output. q a 190 q b 5 π a 0 π b (5)(5)[0.5(5) 2 ]$12.5 D. Compare firm output, total output and price for parts through C. Do your values make sense? s expected, we observe more production and a lower price when social welfare is maximized. When Firm can move first it produces more than it does in the Cournot case, implying a firstmover advantage. We find a similar effect if moved first compared to the Cournot case. 1 pologies for forcing you to get out your calculator. Economics 100 Page 3 Problem Set 11
4 3. The only two consumers in an exchange economy, consumer and consumer, consume the only two goods, and, in the economy. There are units of available and units of.. If and have identical preferences, mutually beneficial trade cannot occur. True or false? Explain. False. Mutually beneficial trade will not occur only when the allocation of resources among and is already efficient. In the case of our twoconsumer economy, MRS MRS indicates an efficient allocation of goods. If MRS is not equal to MRS, the two consumers will be able to arrange a mutually beneficial trade (I assume identical convex preferences).. ssume s preferences are described by U and s preferences are described by U 2, where,,, are the consumption of and by consumers and, respectively. Draw an Edgeworth box describing this scenario. Label the lengths of the sides, draw a few indifference curves for each consumer and (roughly) sketch the contract curve. IC s () IC s () Contract Curve (rough Sketch) C. Now derive an equation for the contract curve. (Hint: Compute the MRS for consumer as a function of and, and for consumer as a function of and. Impose the restriction that total consumption of should equal the total units of available, and do the same for. Rearrange to get an equation of as a function of (your result should look pretty simple)). When on the contract curve, MRS MRS. Therefore, MU MU MU MU Economics 100 Page 4 Problem Set 11
5 Since + and +, we substitute and into the above equation and then solve for as a function of. The contract curve is a straight diagonal line connecting 's origin to 's origin (note that this is unlike the curved "sketch" drawn in part. We have a linear contract curve, but this is not always the case). D. Suppose that consumer has an initial endowment of 5 units of and 15 units of, and consumer has the remainder of what's available. Show, using the concept of MRS and the Edgeworth ox, that a trade could benefit both consumers. MRS MRS MRS MRS In the following graph, any point in the shaded area represents a new allocation of and that benefits both consumers relative to the original endowment. So any trade which puts them into this area is beneficial (Pareto improving). Contract Curve IC () 15 IC () 5 Economics 100 Page 5 Problem Set 11
6 E. ssume the consumers can trade as much as they like at the prices of P 1 and P 1. If starting out with the same endowments as in part (D), how much will each consumer want to buy/sell of each good? Is the result a competitive equilibrium? Each consumer s demand will be at a point such that (1) P /P MRS, and (2) the amount spent on the desired bundle of goods is equal to the value of the initial endowment. For consumer : P P nd the cost of the initial endowment cost of the new bundle 1(10) + 1(10) (1) (2) + 10 and 10 For consumer : 1 1 nd 1(10) + 1(10) + 10 and 10 wishes to sell 5 units of and buy 5 units of. wishes to sell 5 units of and buy 5 units of. This is a competitive equilibrium. F. ssume the consumers can trade as much as they like at the prices of P 2 and P 1. If starting with equal endowments (each individual has 10 units of both good and good ), how much will each consumer want to buy/sell of each good? Is this result a competitive equilibrium? For consumer : (1) P /P / 2 (2) value of initial endowment cost of new bundle 2(10)+1(10) Substitute and solve: For consumer : (1) P /P / 2 (2) Substitute and solve: wishes to sell 2.5 units of and buy 5 units of. also wants to sell 2.5 units of and buy 5 units of. Since supply is not equal to demand in these markets for and, this is NOT a competitive equilibrium. Economics 100 Page 6 Problem Set 11
7 G. Suppose consumer C considers 2 units of a perfect substitute for 1 unit of and consumer D considers 3 units of a perfect substitute for 1 unit of (these ratios hold at all consumption levels). Now, consumers C and D are the only two consumers in an exchange economy. Repeat part (C). Firstly, I should have mentioned that you can't solve for the contract curve in the same way as part (C). It's easier to see what the contract curve will look like on a graph. To sketch, realize that consumer C is just as happy with 2 units of and no units of or no units of and 1 unit of. nd because and are perfect substitutes for this consumer, indifference curves are linear. U C (,) + 2 (any utility function with constant MRS1/2 is correct) Consumer D is just as happy with 3 units of and no units of or no units of and 1 unit of. gain, and are perfect substitutes for this consumer, and therefore indifference curves are linear. U D (,) + 3 (any utility function with constant MRS 1/3 is correct) MRS C never equals that of MRS D (both are constants in this example). Therefore, we get corner solutions and the contract curve follows the border of the Edgeworth ox. IC s (C) (slope1/2) D IC s (D) (slope1/3) Contract Curve (bold line) C Economics 100 Page 7 Problem Set 11
Table of Contents MICRO ECONOMICS
economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...
More informationManagerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings
More informationFinal Exam 15 December 2006
Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As
More informationChapter 9 Basic Oligopoly Models
Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models McGrawHill/Irwin Copyright 2010 by the McGrawHill Companies, Inc. All rights reserved. Overview I. Conditions for Oligopoly?
More informationCHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY
CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of .0. It has a constant marginal cost of $0 per unit and sets a price to maximize
More informationECON 600 Lecture 3: Profit Maximization Π = TR TC
ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR TC (We use Π to stand for profit because we use P for something
More informationc. Given your answer in part (b), what do you anticipate will happen in this market in the longrun?
Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm
More information1 st Exam. 7. Cindy's crossprice elasticity of magazine demand with respect to the price of books is
1 st Exam 1. Marginal utility measures: A) the total utility of all your consumption B) the total utility divided by the price of the good C) the increase in utility from consuming one additional unit
More informationEconomics 203: Intermediate Microeconomics I Lab Exercise #11. Buy Building Lease F1 = 500 F1 = 750 Firm 2 F2 = 500 F2 = 400
Page 1 March 19, 2012 Section 1: Test Your Understanding Economics 203: Intermediate Microeconomics I Lab Exercise #11 The following payoff matrix represents the longrun payoffs for two duopolists faced
More informationEconomics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013
Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationChapter 7 Monopoly, Oligopoly and Strategy
Chapter 7 Monopoly, Oligopoly and Strategy After reading Chapter 7, MONOPOLY, OLIGOPOLY AND STRATEGY, you should be able to: Define the characteristics of Monopoly and Oligopoly, and explain why the are
More informationMICROECONOMICS II PROBLEM SET III: MONOPOLY
MICROECONOMICS II PROBLEM SET III: MONOPOLY EXERCISE 1 Firstly, we analyze the equilibrium under the monopoly. The monopolist chooses the quantity that maximizes its profits; in particular, chooses the
More information2. Efficiency and Perfect Competition
General Equilibrium Theory 1 Overview 1. General Equilibrium Analysis I Partial Equilibrium Bias 2. Efficiency and Perfect Competition 3. General Equilibrium Analysis II The Efficiency if Competition The
More informationA Detailed Price Discrimination Example
A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include
More informationEconomics 165 Winter 2002 Problem Set #2
Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs
More informationUnit 7. Firm behaviour and market structure: monopoly
Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and
More informationEconomics Homework 3 Fall 2006 Stacy DickertConlin
Economics 0  Homework Fall 00 Stacy DickertConlin nswer Key. ndy collects baseball and football cards. The following graph shows a few of his indifference curves. The price of a pack of baseball cards
More informationEconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony
EconS 301 Review Session #8 Chapter 11: Monopoly and Monopsony 1. Which of the following describes a correct relation between price elasticity of demand and a monopolist s marginal revenue when inverse
More informationAGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.
AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.
More informationOligopoly and Strategic Pricing
R.E.Marks 1998 Oligopoly 1 R.E.Marks 1998 Oligopoly Oligopoly and Strategic Pricing In this section we consider how firms compete when there are few sellers an oligopolistic market (from the Greek). Small
More informationNONCOOPERATIVE OLIGOPOLY MODELS
NONCOOPERATIVE OLIGOPOLY MODELS 1. INTRODUCTION AND DEFINITIONS Definition 1 (Oligopoly). Noncooperative oligopoly is a market where a small number of firms act independently but are aware of each other
More informationThe Basics of Game Theory
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology RECITATION NOTES #7 The Basics of Game Theory Friday  November 5, 2004 OUTLINE OF TODAY S RECITATION 1. Game theory definitions:
More informationCHAPTER 6 MARKET STRUCTURE
CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit
More informationEconomics 201 Fall 2010 Introduction to Economic Analysis Problem Set #6 Due: Wednesday, November 3
Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #6 Due: Wednesday, November 3 1. Cournot Duopoly. Bartels and Jaymes are two individuals who one day discover a stream
More informationAn increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.
1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.
More informationCHAPTER 4 Consumer Choice
CHAPTER 4 Consumer Choice CHAPTER OUTLINE 4.1 Preferences Properties of Consumer Preferences Preference Maps 4.2 Utility Utility Function Ordinal Preference Utility and Indifference Curves Utility and
More informationPrice competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
More informationChapter 6 Competitive Markets
Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a
More informationMicroeconomics. Lecture Outline. Claudia Vogel. Winter Term 2009/2010. Part III Market Structure and Competitive Strategy
Microeconomics Claudia Vogel EUV Winter Term 2009/2010 Claudia Vogel (EUV) Microeconomics Winter Term 2009/2010 1 / 25 Lecture Outline Part III Market Structure and Competitive Strategy 12 Monopolistic
More informationEconomics II: Micro Fall 2009 Exercise session 5. Market with a sole supplier is Monopolistic.
Economics II: Micro Fall 009 Exercise session 5 VŠE 1 Review Optimal production: Independent of the level of market concentration, optimal level of production is where MR = MC. Monopoly: Market with a
More informationPrice Discrimination: Exercises Part 1
Price Discrimination: Exercises Part 1 Sotiris Georganas Royal Holloway University of London January 2010 Problem 1 A monopolist sells in two markets. The inverse demand curve in market 1 is p 1 = 200
More informationEC508: Microeconomic Theory Midterm 3
EC508: Microeconomic Theory Midterm 3 Instructions: Neatly write your name on the top right hand side of the exam. There are 25 points possible. Your exam solution is due Tuesday Nov 24, 2015 at 5pm. You
More informationMarginal cost. Average cost. Marginal revenue 10 20 40
Economics 101 Fall 2011 Homework #6 Due: 12/13/2010 in lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that
More informationIndustrial Organization Answer Key to Assignment # 1
Trinity College Dublin Instructor: Martin Paredes Department of Economics Michaelmas Term 006 Industrial Organization Answer Key to Assignment # 1 1. What are the economic costs of operating the restaurant
More informationProblem Set #5Key. Economics 305Intermediate Microeconomic Theory
Problem Set #5Key Sonoma State University Economics 305Intermediate Microeconomic Theory Dr Cuellar (1) Suppose that you are paying your for your own education and that your college tuition is $200 per
More informationCEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.
1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market
More informationCHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition
CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates
More informationMarket Structure: Duopoly and Oligopoly
WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting
More informationMICROECONOMICS AND POLICY ANALYSIS  U8213 Professor Rajeev H. Dehejia Class Notes  Spring 2001
MICROECONOMICS AND POLICY ANALYSIS  U8213 Professor Rajeev H. Dehejia Class Notes  Spring 2001 General Equilibrium and welfare with production Wednesday, January 24 th and Monday, January 29 th Reading:
More informationOligopoly. Chapter 10. 10.1 Overview
Chapter 10 Oligopoly 10.1 Overview Oligopoly is the study of interactions between multiple rms. Because the actions of any one rm may depend on the actions of others, oligopoly is the rst topic which requires
More informationWeek 7  Game Theory and Industrial Organisation
Week 7  Game Theory and Industrial Organisation The Cournot and Bertrand models are the two basic templates for models of oligopoly; industry structures with a small number of firms. There are a number
More informationProblems on Perfect Competition & Monopoly
Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In longrun equilibrium, every firm in a perfectly
More informationAll these models were characterized by constant returns to scale technologies and perfectly competitive markets.
Economies of scale and international trade In the models discussed so far, differences in prices across countries (the source of gains from trade) were attributed to differences in resources/technology.
More informationUNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES. Monopolistic Competition
UNIT 6 cont PRICING UNDER DIFFERENT MARKET STRUCTURES Monopolistic Competition Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on
More informationMikroekonomia B by Mikolaj Czajkowski. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Mikroekonomia B by Mikolaj Czajkowski Test 12  Oligopoly Name Group MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The market structure in which
More informationUniversity of Hong Kong ECON6021 Microeconomic Analysis Oligopoly
1 Introduction University of Hong Kong ECON6021 Microeconomic Analysis Oligopoly There are many real life examples that the participants have nonnegligible influence on the market. In such markets, every
More informationLecture 11: Oligopoly and Strategic Behavior
Lecture 11: Oligopoly and Strategic Behavior Few Firms in the Market: Each aware of others actions Each firm in the industry has market power Entry is Feasible, although incumbent(s) may try to deter it.
More informationMonopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2
Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2 Economics of Competition and Regulation 2015 Maria Rosa Battaggion Perfect
More informationMonopoly: Linear pricing. Econ 171 1
Monopoly: Linear pricing Econ 171 1 The only firm in the market Marginal Revenue market demand is the firm s demand output decisions affect market clearing price $/unit P 1 P 2 L G Demand Q 1 Q 2 Quantity
More informationSOLUTIONS TO HOMEWORK SET #4
Sloan School of Management 15.010/15.011 Massachusetts Institute of Technology SOLUTIONS TO HOMEWORK SET #4 1. a. If the markets are open to free trade, the monopolist cannot keep the markets separated.
More informationSample Questions for ECN 302 Midterm 1
Sample Questions for ECN 302 Midterm 1 The correct answers are highlighted in yellow and the explanations for selected questions are provided in bold italics. Question (1): Which of the following will
More informationEcon 101: Principles of Microeconomics Fall 2012
Problem 1: Use the following graph to answer the questions. a. From the graph, which good has the price change? Did the price go down or up? What is the fraction of the new price relative to the original
More informationFinance 360 Problem Set #8 Solutions
Finance 360 Problem Set #8 Solutions ) Consider the game of chicken. Two players drive their cars down the center of the road directly at each other. Each player chooses SWERVE or STAY. Staying wins you
More informationChapter 8. Competitive Firms and Markets
Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,
More informationSurplus Effects of Vertical Integration With and Without Double Marginalization  Examples 1
Surplus Effects of Vertical Integration With and Without Double Marginalization  Examples 1 What is Double Marginalization? When firms have market power, they will set price above marginal cost, which
More informationProfit Maximization. 2. product homogeneity
Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out
More informationExamples on Monopoly and Third Degree Price Discrimination
1 Examples on Monopoly and Third Degree Price Discrimination This hand out contains two different parts. In the first, there are examples concerning the profit maximizing strategy for a firm with market
More informationPrice Competition Under Product Differentiation
Competition Under Product Differentiation Chapter 10: Competition 1 Introduction In a wide variety of markets firms compete in prices Internet access Restaurants Consultants Financial services Without
More informationMidterm Exam #1  Answers
Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.
More informationA. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.
1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change
More informationCompetition and Regulation. Lecture 2: Background on imperfect competition
Competition and Regulation Lecture 2: Background on imperfect competition Monopoly A monopolist maximizes its profits, choosing simultaneously quantity and prices, taking the Demand as a contraint; The
More information(b) Can Charlie afford any bundles that give him a utility of 150? (c) Can Charlie afford any bundles that give him a utility of 300?
Micro PS2  Choice, Demand and Consumer Surplus 1. We begin again with Charlie of the apples and bananas. Recall that Charlie s utility function is U(x A, x B ) = x A x B. Suppose that the price of apples
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)
More informationMonopoly and Monopsony
Multilant Firm. rinciples of Microeconomics, Fall ChiaHui Chen November, Lecture Monopoly and Monopsony Outline. Chap : Multilant Firm. Chap : Social Cost of Monopoly ower. Chap : rice Regulation. Chap
More informationManagerial Economics Prof. Trupti Mishra S.J.M. School of Management Indian Institute of Technology, Bombay. Lecture  13 Consumer Behaviour (Contd )
(Refer Slide Time: 00:28) Managerial Economics Prof. Trupti Mishra S.J.M. School of Management Indian Institute of Technology, Bombay Lecture  13 Consumer Behaviour (Contd ) We will continue our discussion
More informationREVIEW OF MICROECONOMICS
ECO 352 Spring 2010 Precepts Weeks 1, 2 Feb. 1, 8 REVIEW OF MICROECONOMICS Concepts to be reviewed Budget constraint: graphical and algebraic representation Preferences, indifference curves. Utility function
More informationChapter 11. T he economy that we. The World of Oligopoly: Preliminaries to Successful Entry. 11.1 Production in a Nonnatural Monopoly Situation
Chapter T he economy that we are studying in this book is still extremely primitive. At the present time, it has only a few productive enterprises, all of which are monopolies. This economy is certainly
More informationEconomics 335, Spring 1999 Problem Set #7
Economics 335, Spring 1999 Problem Set #7 Name: 1. A monopolist has two sets of customers, group 1 and group 2. The inverse demand for group 1 may be described by P 1 = 200? Q 1, where P 1 is the price
More informationPreTest Chapter 22 ed17
PreTest Chapter 22 ed17 Multiple Choice Questions 1. Refer to the above diagram. At the profitmaximizing level of output, total revenue will be: A. NM times 0M. B. 0AJE. C. 0EGC. D. 0EHB. 2. For a pure
More informationAns homework 5 EE 311
Ans homework 5 EE 311 1. Suppose that Intel has a monopoly in the market for microprocessors in Brazil. During the year 2005, it faces a market demand curve given by P = 9  Q, where Q is millions of microprocessors
More informationLearning Objectives. Chapter 6. Market Structures. Market Structures (cont.) The Two Extremes: Perfect Competition and Pure Monopoly
Chapter 6 The Two Extremes: Perfect Competition and Pure Monopoly Learning Objectives List the four characteristics of a perfectly competitive market. Describe how a perfect competitor makes the decision
More informationMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Chap 13 Monopolistic Competition and Oligopoly These questions may include topics that were not covered in class and may not be on the exam. MULTIPLE CHOICE. Choose the one alternative that best completes
More informationPricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young
Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and
More informationMarket Supply in the Short Run
Equilibrium in Perfectly Competitive Markets (Assume for simplicity that all firms have access to the same technology and input markets, so they all have the same cost curves.) Market Supply in the Short
More informationECON 312: Oligopolisitic Competition 1. Industrial Organization Oligopolistic Competition
ECON 312: Oligopolisitic Competition 1 Industrial Organization Oligopolistic Competition Both the monopoly and the perfectly competitive market structure has in common is that neither has to concern itself
More informationTRADE WITH SCALE ECONOMIES AND IMPERFECT COMPETITION (CONT'D)
ECO 352 Spring 2010 No. 14 Mar. 25 OLIGOPOLY TRADE WITH SCALE ECONOMIES AND IMPERFECT COMPETITION (CONT'D) Example using numbers from Precept Week 7 slides, pp. 2, 3. Ingredients: Industry with inverse
More informationINDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK
UNIT EC407, LEVEL 2 INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK Semester 1 1998/99 Lecturer: K. Hinde Room: 427 Northumberland Building Tel: 0191 2273936 email: kevin.hinde@unn.ac.uk Web Page:
More informationMonopoly. Chapter 13. Monopoly and How It Arises. Singleprice Monopoly. Monopoly and Competition Compared. Price Discrimination
CHAPTER CHECKLIST Monopoly Chapter 13 1. Explain how monopoly arises and distinguish between singleprice monopoly and pricediscriminating monopoly. 2. Explain how a singleprice monopoly determines its
More informationChapter 12 Monopolistic Competition and Oligopoly
Chapter Monopolistic Competition and Oligopoly Review Questions. What are the characteristics of a monopolistically competitive market? What happens to the equilibrium price and quantity in such a market
More informationCHAPTER 3 CONSUMER BEHAVIOR
CHAPTER 3 CONSUMER BEHAVIOR EXERCISES 2. Draw the indifference curves for the following individuals preferences for two goods: hamburgers and beer. a. Al likes beer but hates hamburgers. He always prefers
More informationMarket Structure: Perfect Competition and Monopoly
WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit
More informationExam 1. Corn (bushels)
ECONOMICS 10008 Dr. John Stewart Feb. 13, 2001 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Please note that
More informationChapter 3 Consumer Behavior
Chapter 3 Consumer Behavior Read Pindyck and Rubinfeld (2013), Chapter 3 Microeconomics, 8 h Edition by R.S. Pindyck and D.L. Rubinfeld Adapted by Chairat Aemkulwat for Econ I: 2900111 1/29/2015 CHAPTER
More informationDo not open this exam until told to do so.
Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Winter 004 Final (Version ): Intermediate Microeconomics (ECON30) Solutions Final
More informationManagerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect
More information1. Briefly explain what an indifference curve is and how it can be graphically derived.
Chapter 2: Consumer Choice Short Answer Questions 1. Briefly explain what an indifference curve is and how it can be graphically derived. Answer: An indifference curve shows the set of consumption bundles
More informationMonopoly. Monopoly Defined
Monopoly In chapter 9 we described an idealized market system in which all firms are perfectly competitive. In chapter 11 we turn to one of the blemishes of the market system the possibility that some
More informationECON 301: General Equilibrium I (Exchange) 1. Intermediate Microeconomics II, ECON 301. General Equilibrium I: Exchange
ECON 301: General Equilibrium I (Exchange) 1 Intermediate Microeconomics II, ECON 301 General Equilibrium I: Exchange The equilibrium concepts you have used till now in your Introduction to Economics,
More information1. Supply and demand are the most important concepts in economics.
Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Market is a group of buyers and sellers of a particular good or service. P. 66. b. These individuals
More informationCOMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY
COMMERCE MENTORSHIP PROGRAM COMM295: MANAGERIAL ECONOMICS FINAL EXAM REVIEW SOLUTION KEY WR1 SamIAm is a local restaurant chain located in Vancouver. It is considering different pricing strategies for
More informationNumber of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25
Intermediate Microeconomics Economics 435/735 Fall 0 Answers for Practice Problem Set, Chapters 68 Chapter 6. Suppose a chair manufacturer is producing in the short run (with its existing plant and euipment).
More informationSummary Chapter 12 Monopoly
Summary Chapter 12 Monopoly Defining Monopoly  A monopoly is a market structure in which a single seller of a product with no close substitutes serves the entire market  One practical measure for deciding
More informationECON 103, 20082 ANSWERS TO HOME WORK ASSIGNMENTS
ECON 103, 20082 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot
More informationWeek 1 Efficiency in Production and in Consumption and the Fundamental Theorems of Welfare Economics
1. Introduction Week 1 Efficiency in Production and in Consumption and the Fundamental Theorems of Welfare Economics Much of economic theory of the textbook variety is a celebration of the free market
More informationLabour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes.
Labour Demand Labour is a factor of production, and labour, like other factors, such as capital (machinery, etc) are demanded by firms for production purposes. The quantity of labour demanded depends on
More informationCompetitive Market Equilibrium
Chapter 14 Competitive Market Equilibrium We have spent the bulk of our time up to now developing relationships between economic variables and the behavior of agents such as consumers, workers and producers.
More informationConsumer and Producer Surplus. Consumer and Producer Surplus. Consumer Surplus. Consumer Surplus. Consumer Surplus Individual consumer surplus
Consumer and Consumer and February 6, 2007 Reading: Chapter 6 Introduction Consumer surplus Producer surplus Efficiency and the gains from trade s 2 Introduction Connections to: Opportunity costs to consumers
More informationECN 221 Chapter 5 practice problems This is not due for a grade
ECN 221 Chapter 5 practice problems This is not due for a grade 1. Assume the price of pizza is $2.00 and the price of Beer is $1.00 and that at your current levels of consumption, the Marginal Utility
More information