ecos3005ps1

# ecos3005ps1 - ii What is the market price iii What are the...

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INDUSTRIAL ORGANISATION - Problem set 1 Semester 2, 2010 1 Problem set 1 1. Consider a market with the following properties. All ﬁrms have identical cost technology, summarised by the following total cost curve: C ( q i ) = 1000 + 10 q i + 0 . 1 q 2 i , where q i is the output of the representative ﬁrm, i . The market (inverse) demand curve is given by P ( Q ) = 110 - 0 . 1 Q , where Q = n i = 1 q i is the total output of the n ﬁrms in the industry. (a) Cost curves i. Find an algebraic expression for the marginal cost curve, MC ( q i ) , of the rep- resentative ﬁrm. Also ﬁnd the ﬁrm’s average costs, average ﬁxed costs, and average variable costs. ii. Does the representative ﬁrm enjoy economies of scale at q i = 50? At q i = 100? At q i = 200? (b) Perfect competition - Short run i. Suppose there are 6 competitive (price-taking) ﬁrms in the market. How much does each ﬁrm produce? (Hint: Each ﬁrm is identical. Therefore assume each ﬁrm produces the same quantity).
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Unformatted text preview: ii. What is the market price? iii. What are the proﬁts (or losses) of each ﬁrm? (c) Perfect competition - Long run (harder) i. Would we expect entry into the perfectly competitive market with 6 ﬁrms? Why, or why not? ii. How many competitive ﬁrms can be sustained in this industry in the long run? (Hint: let the number of ﬁrms in the market be n , solve for the competitive equilibrium as before, and think about the long run equilibrium conditions). iii. What about the short run? If there were 10 competitive ﬁrms in the market, what would happen in the short run? What about 100 competitive ﬁrms? (d) Monopoly i. Suppose there is a single ﬁrm operating in the market. How much would the monopolist produce? ii. What is the market price? iii. What are the proﬁts (or losses) of the monopolist?...
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## This note was uploaded on 11/02/2010 for the course ECOS 3005 taught by Professor Douglas during the Three '10 term at University of Sydney.

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