1) a) Describe the characteristics of oligopoly and monopolistic competition. Give an example of product market of oligopoly and monopolistic competition.
b) Figure 1 shows the market for the three moving companies in a small nation. If the movers act as perfect competitors, what is the price per mile and the number of miles per year? If the movers collude and act as a single monopoly, what is the price per mile and the number of lines per year?
2) Suppose that the local hardware market is comprise of two firms, A and B. Each firm is trying to decide whether to undertake a new advertising campaign. The advertising will gain new customers and increase profits only if the other firm does not advertise. Thus, if A advertises, A will earn higher profits if B does not advertise, but low profit if B also advertises. Likewise, if B advertises, B will earn higher profits if A does not advertise, but low profit if A also advertises. If neither firm advertises, they keep medium profits they are currently earning.
a) Draw the decision box for this game.
b) What is the Nash equilibrium of this game?
c) Is there an outcome that would be better than the Nash equilibrium for both firms? How could it be achieved?
3) What is excess capacity and markup? What industry has excess capacity and markup in the long run? Explain your answer with the help of figures.
4) The demand and cost schedules for a firm in monopolistic competition are in Table 1.
a) What is the profit-maximizing level of output and price?
b) What amount of profit is the firm earning?
c) Is this firm in a short-run or long-run equilibrium? Why?
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Table I
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Price
(dollars per unit)
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Quantity
demanded
(units)
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Quantity
produced
(units)
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Average total
cost
(dollars)
|
Marginal cost
(dollars)
|
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26
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0
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0
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24
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1
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18.00
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8.00
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22
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2
|
2
|
12.00
|
6.00
|
|
20
|
3
|
3
|
10.66
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8.00
|
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18
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4
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4
|
10.50
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10.00
|
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16
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5
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5
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11.20
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14.00
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14
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6
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6
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12.66
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20.00
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12
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7
|
7
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15.14
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30.00
|
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10
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8
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8
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23.25
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80.00
|
5) a) Figure 2 represents a restaurant operating in monopolistic competition.
(i) What is the profit-maximizing level of output?
(ii) What price will the firm charge?
(iii) What is the firm's profit (or loss)?
(iv) Is this a long-run equilibrium? Why or why not?
(v) Is this firm producing its efficient scale of output?
b) How do the characteristics of monopolistic competition and perfect competition differ?
6) Among monopoly, oligopoly, monopolistic competition and perfect competition, how would you classify the market for each of the following product? Explain.
a) Tap water.
b) Bottled water.
c) Cola.
d) Cooper.
e) Fixed-line telephone service.
f) Lipstick.
g) Airline services in Malaysia.