With the aid of a diagram explain how a monopolist determines how much output to produce and what price to charge. b. Explain how the perfectly competitive firm decides whether to operate or shut down in the short run. c. Explain why firms operating in monopolistically competitive markets probably will not earn an economic profit in the long run. d. Why does interdependence of firms play a major role in oligopoly but not in perfect competition or monopolistic competition? Question 2 a. A producer borrows money and starts a business. He himself looks after the business. Identify implicit and explicit costs from this information. Explain. b. List and explain which of the following is a fixed cost or a variable cost for Caribbean Airlines. i. The cost of fuel used in its planes. ii. The rent on its Piarco headquarters. iii. The lease payments on its current inventory of jets. iv. The cost of peanuts it serves to passengers. v. The salary paid to the Chief Executive Officer. c. How is the difference between average total cost and average variable cost impacted by an increase in output? Question 3 a. Andre has a salary of $1000. He spends his entire budget on shoes and beers. The cost for a pair of shoes is $15 and the cost for can of beer is $25. i. Construct Andre’s budget constraint (place) beers on the y-axis. ii. Suppose Andre’s salary rises by 25%. Also suppose that the price of shoes and beers each rise by 40%. Construct Andre’s new budgetconstraint. What is the difference between the new and old budget constraints? iii. Suppose that the price of beers fell from $25 per beer to $15. Construct Andre’s new budget constraint. What is the difference between the new and old budget constraints. b. Explain the relationship between the budget constraint and indifference curve at consumer optimum.
With the aid of a diagram explain how a monopolist determines how much
output to produce and what price to charge.
b. Explain how the
down in the short run.
c. Explain why firms operating in monopolistically competitive markets probably
will not earn an economic profit in the long run.
d. Why does interdependence of firms play a major role in oligopoly but not in
perfect competition or
Question 2
a. A producer borrows money and starts a business. He himself looks after the
business. Identify implicit and explicit costs from this information. Explain.
b. List and explain which of the following is a fixed cost or a variable cost for
Caribbean Airlines.
i. The cost of fuel used in its planes.
ii. The rent on its Piarco headquarters.
iii. The lease payments on its current inventory of jets.
iv. The cost of peanuts it serves to passengers.
v. The salary paid to the Chief Executive Officer.
c. How is the difference between
impacted by an increase in output?
Question 3
a. Andre has a salary of $1000. He spends his entire budget on shoes and beers.
The cost for a pair of shoes is $15 and the cost for can of beer is $25.
i. Construct Andre’s budget constraint (place) beers on the y-axis.
ii. Suppose Andre’s salary rises by 25%. Also suppose that the price of
shoes and beers each rise by 40%. Construct Andre’s new budgetconstraint. What is the difference between the new and old budget
constraints?
iii. Suppose that the price of beers fell from $25 per beer to $15. Construct
Andre’s new budget constraint. What is the difference between the new
and old budget constraints.
b. Explain the relationship between the budget constraint and indifference curve
at consumer optimum.
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