Pure Competition

2, 2, 0, 5,1, 4,1, 3, 0, 0, 1, 4, 4, 0,1, 4, 3, 4, 2, 1

(78). Here we can see how

|1 |$ 60 |$ 45 |$ 105 |$ 60 |$ 45 |$ 105 |$ 45 |

23. A firm participating in a competitive market with costs described in the table below would always shut down:

Solutions: 1a 2c 3c 4d 5d 6c 7c 8d 9d 10a 11d 12a 13c 14c 15d 16c 17c 18b 19b 20c 21d 22a

Two-part pricing: A local surf store estimates that their average customer 's demand per year is P = 3.5 - 0.5Q, and knows that the marginal cost of each rental is $0.5. a- How much should the store charge for an annual membership in order to extract all the consumer surplus using an optimal two-part pricing strategy? b- How much should the store charge for each rental if it uses an optimal two-part pricing strategy?

17 Enter the smaller of line 15 or 16 . . . . . . . .

Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market (Mankiw, 2014). Monopolies aim to find the profit-maximizing price for its product. If a firm is initially producing at a low level of output, marginal revenue exceeds marginal costs (Mankiw, 2014). Every time production increases by one unit, the marginal revenue increases again and is greater than marginal costs (Mankiw, 2014). Therefore

In the short run the perfect competition equilibrium can be found by graphing the marginal cost (MC), average total cost (ATC) and marginal revenue (MR) curves. In perfect competition the price is equal to the average revenue, which is equal to the marginal revenue and these are all constant, giving an infinitely elastic demand curve for the firm. The demand curve is “perfectly price elastic” due to the homogeneity of the products supplied, where each supplier, as a price taker, must focus on a single price. Given this, the only choice a supplier has in the short run is how much to produce. For profit maximisation to occur marginal costs (supply curve) must equal marginal revenue (demand curve). Profit maximisation is assumed to mean the maximisation of normal economic profit (i.e. revenue that covers the

8. Compared to a perfectly competitive industry with the same demand and cost curves, a monopoly’s price and output will be which of the following?

665 0.34 174 216 537 234 122 1.2 0.2 60.4 9.6 0.22 65.0 2,149 554 66.6 2,483 80,300 492 14 23 6 21 15 874 524 12,216 30

4 92 69 30 30 22 21 27 20 32 67 73 53 26 22 16 24 35 23 24 45 70 64 61 56 40 25 26 39 53 47 25 31 27 14

F A Z E E L A H M E D K H A N B S B M K G 5 0 7 A I n t e r p r e t m a r k e t t r e n d s a n d d e v e l o p m e n t s

Evaluate each of the following changes in supply and/or demand. How will each affect equilibrium price and quantity in a competitive market? Will price and quantity rise, fall, or be unchanged? Based on shifts, will the answers be indeterminate?

3 3 3 3 4 4 4 7 7 7 8 9 11 12 13 14 15 16 17 18 19 21