Homework 7 Solutions

Homework 7 Solutions - Weekly Solution to Homework

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Homework #7 CHAPTER 14 1. (a) and (d) are probably oligopolies dominated by a few firms: (b), (c), and (e) are clearly monopolistically competitive because there is lots of product differentiation, many firms, and lots of entry and exit. 5. Both A’s and B’s potential losses are minimized by cheating. To minimize the maximum loss, A should cheat because it yields higher profit regardless of what B does. The same is true for B. If A cheats, so will B, and if B cheats, so will A. Most likely outcome: Both will cheat. CHAPTER 15 1. (a) Disagree. There are no barriers to entry in monopolistic competition, and economic profits are eliminated in the long run. (b) Disagree. Price does not equal marginal cost in the short or long run in monopolistically competitive industries. 3. The key is the availability of substitutes. A monopoly is a firm producing a product for which there is no close substitute. When they were just another band, clubs could hire a cheap band and consumers didn’t know the difference or care. With their success, there became fewer
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