Econ 274 Practice Problems

Econ 274 Practice Problems - as long as price is larger...

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Econ 274 Practice Problems 1) Can you draw a monopoly supply curve? If so, what does it look like? 2) Why is the marginal revenue always less than the price for a monopoly? 3) Can an economist infer whether industry behavior in an oligopoly is the result of tacit versus explicit collusion? 4) How can an elastic demand curve deter the formation of a cartel? 5) Consider an industry consisting of a cartel of three firms and a single price-taking outside firm. Would the following changes make it easier or more difficult to maintain the cartel agreement, and why? a. an increase in the elasticity of market demand b. entry by a second non-member firm, reducing the cartel’s share of industry output c. an increase in the elasticity of the non-member firm’s supply curve 6) Consider an industry that is served by a fixed number of small firms that are price takers and a large dominant firm that has a substantial cost advantage over the other firms. The “fringe” firms together will supply
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Unformatted text preview: as long as price is larger than 15. Market demand is . a. Write down two equations that describe the residual demand curve faced by the dominant firm. b. Draw a graph of the residual demand curve faced by the dominant firm. Be sure to label the axis and the intercepts. Include on this graph the marginal revenue curve faced by the dominant firm. c. Suppose that the dominant firm has constant marginal costs. Show on the graph how low marginal cost would need to be in order for the dominant firm to be the only firm producing. 7) The inverse market demand curve for a certain commodity is p = 85 10 Q , and costs to a single firm of producing it are C ( q ) = 120 _+ 25 q . Show that it is socially desirable that a certain quantity of the commodity is produced, but that no firm is willing to provide it. How might the government insure that the socially optimal level of output is provided?...
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This note was uploaded on 12/15/2011 for the course EES 108 taught by Professor Giligan during the Spring '11 term at Vanderbilt.

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