ECON 562 THIRD PROBLEM SET

1. A firm has the following total costs, where Q is output and TC is total cost:

a. Say the firm is in a perfectly competitive market. If the current market (equilibrium) price is $ 60, at what output level will the firm as a profit maximizer produce at?

b. Say the market price rises to $ 80. At what output level (as a perfect competitor) will this produce at?

c. How much profit is the firm making at a price of $80? Based on this calculation, do you expect firms to enter or leave this market?

d. Say instead this firm is a monopoly. If the firm maximizes profit at an output level where marginal revenue equals $ 50, at what output level will this be?

2. (6 pts) A market has six competitors in it, with the following total sales amounts:

a. Calculate the four firm concentration ratio for this industry.

b. Calculate the Herfindahl index for this market.

c. Based on your calculation in (b), would you classify this market as moderately or highly oligopolistic? Why?