1. You are a self-employed profit-maximization consultant specializing in monopolies. Five single-price, profit-maximizing monopolies are currently seeking your advice, and although the information they have supplied to you is incomplete, your expert knowledge allows you to go back and make a definite recommendation in each case. Select one of the following recommendations for each firm in the short run:
a. Remain at the current output level.
b. Increase output.
c. Reduce output.
d. Shut down.
e. Go back and recalculate your figures because the ones supplied can't possibly be right.
|
Firm
|
A
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B
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C
|
D
|
E
|
|
P
|
3.90
|
5.90
|
|
35.90
|
35.00
|
|
MR
|
3.00
|
|
9.00
|
37.90
|
|
|
TR
|
|
|
44000
|
|
3990
|
|
Q
|
2000
|
10000
|
4000
|
5000
|
1000
|
|
TC
|
7400
|
|
|
|
3300
|
|
MC
|
2.90
|
5.90
|
9.00
|
37.90
|
|
|
ATC
|
|
4.74
|
11.90
|
35.90
|
At minimum value
|
|
AVC
|
3.24
|
4.24
|
10.74
|
|
23.94
|
|
Your recommendation
|
|
|
|
|
|
2) If income elasticity of demand of good X is 0.89, what will happen to equilibrium price if there is an increase in income of consumers? Draw a diagram to support your answer.
3) If Ministry of labor sets up a minimum wage in the labor market, what can be the potential effect on the employment? Explain your answer with help of relevant diagram.
4) A manager in a firm has been assigned a job to find costs at different levels of output He is provided with the following table and asked to fill up the missing values since there was no information available.
5) According to posting from last fall, sales for products such as Spam, pancake mixes, instant potatoes, rice and beans have been booming during the recession; a spokesperson from a grocery chain is quoted as saying "They're real belly fillers." Comment on this, using concept related to any one of the elasticities discussed in class.
6) If RTA increases the bus-fare from Abu Dhabi to Dubai, then what will happen to their revenue? [Hint: the demand curve is inelastic] Explain your answer with help of a diagram.
7) In mentioned cases provide a neat diagram to explain your answer. Make sure to label axes properly. Else points will be deducted. The maximum possible points is 50.
8) Recent research has documented the fact that Coke is something different compared to other soft drinks. In fact related literature states that Coke has already attained the monopoly status. If we assume the research is correct and coke is a monopolist, then a) Do you think that coke actively engages itself in price discrimination? B) If so, what type of price discrimination they are engaged in? Discuss your answer with a relevant diagram.
9) Etisalat and Du are duopolists. If they form a cartel between themselves, then what will happen to price and output in the market. Discuss your answer with a relevant diagram.
10) In a recent conversation a policy maker argued that since DEWA is monopolist, they are charging higher price and lower output is produced. He further mentioned that government should split the entire unit into small pieces so that competition can drive down prices. Do you agree with this statement? Explain your answer in few words. Provide a relevant diagram
11) Consider the following pay-off matrix (Numbers in the matrix reflect their respective profit levels) for two gas stations.
|
|
Gas station A
|
|
Gas Station B
|
High price
|
Low price
|
|
High price
|
200,000 AED; 200, 000 AED
|
50,000 AED; 400,000 AED;
|
|
Low price
|
400,000 AED; 50,000 AED
|
80,000 AED; 80,000 AED;
|
If each firm follows their dominant strategy, then what will be their respective profit levels? And if they collude then what is their new profit level?
12) A cosmetic firm operating in a monopolistically competitive market environment spends a lot of money in advertisement and ends up with super-normal profit even in long run. Is it possible? Explain your answer in few words.