Econ Micro 217 Homework Assignment 2015

1.Exhibit U-8 presenting firm A and firm B to
answer the following questions. All underlying work must be shown (2 points)

a. Is firm A and
the industry represented by firm A in the long-run equilibrium or the short-run
equilibrium?
Explain

b. What should
firm A and the industry A expect in the long-run, entry or exit? Explain why?

c. Refer to your
answer above. Explain what will happen as the result of the long-run adjustment
to the industry A:

number
of sellers (firms).0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>profit
earned by typical firm and the industry A.0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>industry
output d. Is firm B and
the industry represented by firm B in the long-run equilibrium or short-run
equilibrium? Explaine. What should
firm B and the industry B expect in the long-run, entry or exit? Explain why?f. Refer to your
answer above. Explain what will happen
as the result of the long-run adjustment to the industry B:.0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>number
of sellers (firms).0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>profit
earned by typical firm and the industry B.0pt;’=”” list=”” lfo1;=”” level1=”” l0=”” 0pt;=””>industry
output g. In-the long run
equilibrium perfectly competitive firm does not earn any profit, so will not
stay in the industry. Do you agree? Explain2. During a coffee –room debate among several
young MBA.s who had recently graduated, one of the young executives flatly
stated: “The most this company can lose on its Brazilian division is the amount
it has invested (its fixed costs)”. Not everyone agreed with this statement. In
what sense is this statement correct? Under what circumstances could be it
false? Explain? (1 point)3. Use the graph
below to answers the following questions
(5 points).0pt;’=”” 504.0pt=”” 468.0pt=”” 432.0pt=”” 396.0pt=”” 360.0pt=”” 324.0pt=”” 288.0pt=”” 252.0pt=”” 216.0pt=”” 180.0pt=”” 144.0pt=”” 108.0pt=”” 72.0pt=”” 36.0pt=”” -36.0pt=”” -72.0pt=””>a. Recall that the law of
demand states the more of a good will be purchased the lower its price, other
things constant. Explain why monopoly firms see this law in action but
perfectly competitive firms do not.b. Refer to the
graph above. Explain why the marginal revenue curve is below the monopolist
demand curvec. Refer to the
graph above, what quantity would this monopoly firm produce to maximize profit
and why?d. Refer to the
graph above, what price would this monopoly firm charge to maximize profit? Is demand price elastic or inelastic in the
profit maximizing price? (Extra Point: Calculate the price elasticity of demand
at the profit maximizing price)e. Would the
monopoly firm earn profit or operate at loss or shut down? Why?f. Refer to the
graph above. Calculate monopoly profitg. Refer to the
graph above. If this monopoly is in the long-run equilibrium, is the firm
earning positive economic profit or breaks even? Explain whyh. If this
monopoly market is in the long-run equilibrium, is the market efficient or not?
Explain whyi. Refer to the
graph above. If the government agency imposes on the monopoly above price
ceiling at the socially optimal price:The regulated monopoly would produce
__________units of output and would charge price _______ per unit. As the
result of government regulation market efficiency would be (increased,
decreased) _________ by $ ________The regulated
monopoly would earn $__________ (profit/loss) and the amount of the government
subsidy would be $ _________j. Refer to the
graph above. If the government agency
imposes on the monopoly above price ceiling at the fair return price, the
regulated monopoly would produce _________ units, charge price _______per unit
and would earn $__________in profitsk. Why is the supply curve absent under
monopoly? ExplainTrue/ false. Briefly explain in each case (3 points) 1. Monopoly firm produces and sells identical
product.35pt;=”” right=”” -ms-text-autospace:;=””>2. Because a monopoly is the only firm in an
industry, it can charge virtually any price for its product. .35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>3.Since the monopolist’s marginal revenue is below its price, its
equilibrium output is the same as a perfectly competitive firm..35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>.35pt;=”” right=”” -ms-text-autospace:;=””>

 

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