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12-Discussion Questions

12-Discussion Questions - Lecture 12 Perfect Competition(II...

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Lecture 12: Perfect Competition (II) Suggested questions and exercises (Pindyck and Rubinfeld, Ch.8). Questions: 6, 7, 9 Exercises: 10, 12, 13 QUESTIONS 6. At the beginning of the twentieth century, there were many small American automobile manufacturers. At the end of the century, there are only three large ones. Suppose that this situation is not the result of lax federal enforcement of antimonopoly laws. How do you explain the decrease in the number of manufacturers? (Hint: What is the inherent cost structure of the automobile industry?) 7. Industry X is characterized by perfect competition, so every firm in the industry is earning zero economic profit. If the product price falls, no firms can survive. Do you agree or disagree? Discuss. 9. Why does a tax create a deadweight loss? What determines the size of this loss? EXERCISES Suppose you are given the following information about a particular industry: Q D 6500 100 P Market demand Q S 1200 P Market supply C ( q ) 722 q 2 200 Firm total cost function MC ( q ) 2 q 200 Firm marginal cost function.
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