econ discussion questions

  1) How will managers of a monopolistically competitive firm decide on the optimal level of production?  Elucidate. 

2) Describe market forces that come into play in the short run if a monopolistically competitive firm is making a positive economic profit.  How would this compare to the typical long-run equilibrium?  Explain.   

3) True, False Uncertain and Explain:  “Happy hour” pricing by bars and restaurants (i.e., lower prices at the close of the business day) is not a logical outcome.  The increase in demand for food and beverages around 5:00 p.m. should actually result in higher prices.    

4) Mary and Sam are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200.  {The table below represents the choices available to Mary and Sam.}  

                 *What is the best choice for Sam if he is sure that Mary will cooperate?  

                 *If Mary thinks Sam will cheat, what should Mary do and why?  

                *What is the prisoner’s dilemma result?      

             

		Mary
		A	B
	A	($100, $100)	($200, $0)
Sam
	B	($0, $200)	($150, $150)

  Note:  A = Work independently; B = Cooperate and Lower Output.  Each table entry lists Sam's earnings first, and Mary's earnings second.