MBAA 523 set 5 question

1. For each of the following market structure
characteristics, insert the correct Market Type(s). There may be more than one.
Use these abbreviations: PC – perfect
competition; MC – monopolistic competition; and M – monopoly.

Market
Structure Characteristic

Market
Type

Advertising is not effective for the
individual firm.

MRMR

Product is unique.

In equilibrium, products cannot be
produced at a lower cost or sold at lower price.

Economies of scale are often a
barrier to entry.

Products have many close substitutes.

2. Assume a perfectly competitive market structure. Complete
the diagram to show the profit maximizing price and quantity. Label each (use
Insert textbox). Is the firm earning economic profits or losses? If so, what will occur over the
long-term?

3. A firm sells its product in a perfectly
competitive market where other firms charge a price of $80 per unit. The firm’s
costs are C(Q) = 40 + 8Q + 2Q2. Show your computations.
a. How much output should the firm produce in the
short-run?
b. What price should the firm charge in the
short-run?
c. What are the firm’s short-run profits?
d. What adjustments should be anticipated in the
long-run?

4. Complete the diagram showing the
profit maximizing price and quantity. Label each. Show and label the deadweight
loss (In MS Word, use Insert/Curved Connector, a curved line).
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5. A firm is a monopoly with
demand and cost functions given by P = 200 – 2Q and C(Q) = 2,000 + 3Q2respectively.
Show your computations.
a. Show the equations for MR and MC.
b. Compute the profit maximizing quantity.
c. What is the price at the profit maximizing
quantity?
d. Compute total revenue.
e. Compute total cost.
f. What are the profits?