Econ

Questions

1. What is your name?

2. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

1. Is the firm maximizing profit?

1. Yes

2. No

2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.
   What would increase profit?

1. An increase in output

2. A decrease in output

3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.
   Is the firm in a long-run equilibrium?

1. Yes

2. No

4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.
   What would happen in the long run?

1. Entry would occur

2. Exit would occur

1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

1. Is the firm maximizing profit?

1. Yes

2. No

2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.
   What would increase profit?

1. An increase in output

2. A decrease in output

3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.
   Is the firm in a long-run equilibrium?

1. Yes

2. No

4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.
   What would happen in the long run?

1. Entry would occur

2. Exit would occur

1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

1. Is the firm maximizing profit?

1. Yes

2. No

2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.
   What would increase profit?

1. An increase in output

2. A decrease in output

3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.
   Is the firm in a long-run equilibrium?

1. Yes

2. No

4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.
   What would happen in the long run?

1. Entry would occur

2. Exit would occur

1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

1. Is the firm maximizing profit?

1. Yes

2. No

2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.
   What would increase profit?

1. An increase in output

2. A decrease in output

3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.
   Is the firm in a long-run equilibrium?

1. Yes

2. No

4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.
   What would happen in the long run?

1. Entry would occur

2. Exit would occur

1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

1. Is the firm maximizing profit?

1. Yes

2. No

2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.
   What would increase profit?

1. An increase in output

2. A decrease in output

3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.
   Is the firm in a long-run equilibrium?

1. Yes

2. No

4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.
   What would happen in the long run?

1. Entry would occur

2. Exit would occur

1. A monopolistically competitive restaurant  in long-run equilibrium is maximizing profit by producing and selling 50 meals a day. It minimizes average total cost by producing and selling 60 meals per day.  The following table contains information about average total cost and marginal cost at these two quantities.

1. The graph below contains a sketch of the average total cost curve. Add to this graph a sketch of the demand, marginal revenue, and marginal cost curves facing the firm.

1. What is the socially efficient quantity? The socially efficient quantity is

1. less than 40

2. 40

3. between 40 and 60

4. 60

5. greater than 60

2. Shade the area that represents the deadweight loss.

3. Suppose that the industry changed from monopolistically competitive to perfectly competitive. In the long run price would be

1. greater than 25

2. 25

3. between 18 and 25

4. 18

5. less than 18

    

    

    

    

    

    

   Part II

   Use the information below to answer the remaining questions.

   HH Gregg and Best Buy are the only two firms that sell a large screen TV in a town. Communication to coordinate pricing is illegal but the two firms have figured out a way to communicate with each other without detection by law enforcement officers. Suppose that they communicate and both agree to set the same price. L22-GA, Profits contain two profit tables. The first shows the profits earned by HH Gregg for every possible combination of prices. The second table shows the profits earned by Best Buy. The tables are symmetric.

    

   Profit earned by HH Gregg
   		Price charged by Best Buy
   		10	11	12	13	14	15	16	17	18	19	20
   Price charged by HH Gregg	10	300	300	400	450	700	650	800	700	700	500	300
   	11	350	400	450	500	800	700	850	800	800	600	400
   	12	325	425	500	550	900	800	900	900	900	700	500
   	13	300	400	525	600	800	850	950	1000	1000	800	600
   	14	275	375	500	575	700	900	1000	1100	1100	900	700
   	15	250	350	475	550	675	800	950	1200	1200	1000	800
   	16	225	325	450	525	650	775	900	1100	1300	1100	900
   	17	200	300	425	500	625	750	875	1000	1200	1200	1000
   	18	175	275	400	475	600	725	850	975	1100	1100	1100
   	19	150	250	375	450	575	700	825	950	1075	1000	1000
   	20	125	225	350	425	550	675	800	925	1050	975	900
   Profit earned by Best Buy
   		Price charged by HH Gregg
   		10	11	12	13	14	15	16	17	18	19	20
   Price charged by Best Buy	10	300	300	400	450	700	650	800	700	700	500	300
   	11	350	400	450	500	800	700	850	800	800	600	400
   	12	325	425	500	550	900	800	900	900	900	700	500
   	13	300	400	525	600	800	850	950	1000	1000	800	600
   	14	275	375	500	575	700	900	1000	1100	1100	900	700
   	15	250	350	475	550	675	800	950	1200	1200	1000	800
   	16	225	325	450	525	650	775	900	1100	1300	1100	900
   	17	200	300	425	500	625	750	875	1000	1200	1200	1000
   	18	175	275	400	475	600	725	850	975	1100	1100	1100
   	19	150	250	375	450	575	700	825	950	1075	1000	1000
   	20	125	225	350	425	550	675	800	925	1050	975	900

    

   2.     What price maximizes the sum of their profits? Price = a = _____

    

   3.     How much profit does each firm earn when they charge the same price and maximize the sum of their profits?

    

   Profit earned by each firm = ______

    

   4.     What price maximizes profit for HH Gregg when Best Buy’s price = a?

    

   Price = _______

    

   5.     What price do the firms charge in the Nash equilibrium? (Since the profit tables are symmetric, each firm will charge the same price in the Nash equilibrium.)

    

   Price = _____

    

   6.     How much profit does each firm earn in the Nash equilibrium?

    

   Profit earned by each firm = ______

    

   7.     If the marginal cost of the large screen TV is 400, what price would the firms charge in a competitive market?

    

   Price = _______

    

   8.     How much profit does each firm earn in a competitive market?

   
   Profit earned by each firm = ______