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# ps9 - (Hint Think about the average cost in long run...

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UNIVERSITY OF WISCONSIN Economics 101 – Fall 2005 Wei Zhang Problem Set 9 Due By Nov 21, 2005 Perfect Competition (Chapter 14): Short Run and Long Run 1) It may help to use Chapter 14 from the text to aid in answering the following questions. a. Show a pair of diagrams in which a perfectly competitive industry is in short-run equilibrium, with individual firms making short-run economic profits. Label the area corresponding to the profit. b. Explain what will happen in the long run in this industry. Show this in your diagrams. c. Show a pair of diagrams in which a perfectly competitive industry is in short-run equilibrium, with individual firms making short-run economic losses. Label the area corresponding to the loss. d. Explain what will happen in the long run in this industry. Show this in your diagrams. e. Explain why the long-run equilibrium quantity in this industry is efficient
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Unformatted text preview: . (Hint: Think about the average cost in long run equilibrium.) Monopoly: Single Price v. Perfect Price Discrimination 2) Suppose daily demand for airplane tickets from Madison to Chicago is given by the equation Q D =250 - P. a. If every plane has over 250 seats, and flying a plane between these points costs \$5,000 plus \$50 per passenger, how many tickets would a monopoly airline sell, assuming it must charge all passengers the same price. Show this on a carefully labeled diagram. b. What will the airline's profit be? What will be the consumer surplus and deadweight loss? c. If the airline were able to perfectly price discriminate, how many tickets would it sell? What range of prices would be charged? Is there consumer surplus or deadweight loss? d. What is the average total cost at the optimal quantity in part c? Why is it optimal for the airline to sell some tickets below average cost?...
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