Assignment: Perfectly Competitive and Monopoly Firms
1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain.
2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm's product is $140.
Output FC VC TC TR Profit/Loss
0 $90 $ 0 ___ ___ ___
1 90 90 ___ ___ ___
2 90 170 ___ ___ ___
3 90 290 ___ ___ ___
4 90 430 ___ ___ ___
5 90 590 ___ ___ ___
6 90 770 ___ ___ ___
a. Complete the table.
b. What level of output should the firm produce to maximize profits?
c. Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run? Should it operate at loss or shutdown in the short run?
3. How does the profit maximization condition for a monopoly differ from that for a perfectly competitive firm? How does this difference impact efficiency under each market structure? Explain.
4. The following table provides market share information about the soft-drink industry. Review anti-trust laws and the merger guidelines under "Chapter 15:Monopoly and Antitrust Policy" and conduct your own research onU.S. anti-trust lawsin the KU Online Library or the internet to answer the following questions.
|
Company
|
Market Share
|
|
Coca-Cola
|
37%
|
|
Pepsi-Co
|
35%
|
|
Cadbury Schweppers
|
17%
|
|
Other
|
11%
|
a. Apply theHerfindahl-Hirschman Index (HHI)market concentration rules that guide mergers between companies to prevent monopoly creation and to promote competition among firms. Based on the market sharesof the companies in the table, the merger of which companies will be highly concentrated? What ethical rules will be affected based on U.S. anti-trust laws and merger guidelines in regard to a highly concentrated market?
b. Do you think the Department of Justice and the Federal Trade Commission would approve a merger between any two of the first three companieslisted in the table based U.S. merger guidelines and anti-trust laws? Explain.
c. Do you think this market has barriers to entry? If yes, what might be the market barriers?