KEVIN KOO 2391936 ECON 210 – July 2015 Instructor – Dr. Debanjali Roy Problem Set 2 – Due by end of week 8 (September 18 th , 2015) Total Points 100 (25% of the grade) Individual submission by email: [email protected] Delayed submission will be subject to reduction in points A) Short answer type questions (10 questions, 6 points each) 1.What is the long run equilibrium condition of a monopoly? Do you think government should regulate monopolies? If yes then what type of government policy towards monopolists can be beneficial to the society and consumers? (Refer to the article based on government regulation of monopolies used in class)
2.Consider a monopolist facing linear demand P = 20 – Q (MR = 20-2Q). (a) Find the monopolist’s profit-maximizing choice of price and quantity if total cost is C = 10Q so that marginal cost is constant at 10. (b) What is the relation between P and ATC?(c) what is the profit/loss of the monopolist in this case (d) Show it in a diagram with proper labelling according to the problem
3.Do monopolistic competitors operate at the most efficient scale of production? Explain with diagrams. Total industry sales are $80 million. The top four firms account for sales of $20 million, $15 million, $10 million, and $5 million respectively. The next four firms account for $20million. What is the four firm and eight firm concentration ratio? From the four firm ratio what can you conclude about the market structure of the firms in this industry? Why is the four-firm concentration ratio only an imperfect measure of market power?
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