Why is the perfectly discriminating monopolist’s marginal revenue curve identical to the demand curve it faces?
1. Should the federal government continue to provide Amtrak with subsides? Provide economic arguments for and against and explain which you believe is soundest based on your understanding.
2. Based on the economic concepts of opportunity costs and the profit motive (defined broadly as the desire to become better through our choices), hoe should your limited resources of time and energy be allocated between market work, nonmarket work and leisure? Provided examples
3. Explain how economies of scale can be a barrier to entry.
4. Identify the other two barriers to entry and explain how they block new firms from this market.
5. Suppose that a certain manufacturer has a monopoly on the sorority and fraternity ring business because it has persuaded the “Greeks” to give it exclusive rights to their insignia.
a. Using demand and coast curves, draw a diagram depicting the firm’s profit- maximizing price and output level.
b. Why is marginal revenue less than price for this firm?
c. On your diagram, show the deadweight loss that occurs because the output level is determined by a monopoly rather than by a competitive market.
d. What would happen to price and output if the Greeks decided to charge the manufacturer a royalty fee of $3 per ring?
6. List three conditions that must be met for a monopolist to price discriminate successfully.
7. Why is the perfectly discriminating monopolist’s marginal revenue curve identical to the demand curve it faces?
8. A monopolistically competitive firm faces the following demand and cost structure in the short run:
Output Price FC VC TC TR Profit/Loss
0 100 100 0
1 90 50
2 80 90
3 70 150
4 60 230
5 50 330
6 40 450
7 30 590
a. Complete the table
b. What is the highest profit or lowest loss available to this firm?
c. Should the firm operate or shut down in the short run? Why?
d. What is the relationship between marginal revenue and marginal cost as the firm increase output?
9. Illustrated below are the marginal cost and average total cost curves for a small firm that is in long-run equilibrium.
a. Locate the long run- equilibrium price and quantity if the firm is perfectly competitive.
b. Label the price and quantity p1 and q1.
c. Draw in a demand and marginal revenue curve to illustrate long-run equilibrium if the firm is monopolistically competitive. Label the price and quantity p2 and q2.
d. How do the monopolistically competitive firm’s price and output compare to those of the perfectly competitive firm
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