CHAPTER 10

CHAPTER 10

Question One

1. designer dress – monopolistic competition
2. pears – perfect competition
3. mystery novel – monopolistic competition
4. wheat – Perfectly competitive
5. milk – Perfectly competitive
6. TV show – monopolistic competition.
7. Microwave – monopolistic competition.

 

Question Two

Quantity(Q)	Price(p)	Total Revenue (p*q)	Marginal Revenue	Total Cost	Marginal Cost	Average Cost
0	12	0		30
5	9	45	9	40	2	8
10	7	70	7	52	2.4	5.2
15	6	90	6	72	4	4.8
20	5	100	5	105	6.6	5.25
25	4	100	4	149	8.8	5.96

 

a & b. Calculated on table

1. Profit is maximized when MR = MC or nearly equal. Profit will be maximized on Quantity 20 and price $5
2. No

 

 

 

Question Three

1. When the Popularity of romantic movies decreases, demand will fall in the short run, and firms will earn a negative economic profit. As a result, some firms will exit the market, and existing firms will make zero economic profit in the long run.
2. With the increase in the Popularity of antique furniture, demand will increase, and firms will earn a positive economic profit in the short run. As a result, more firms will enter the market, and in the long term, all the firms will earn zero economic profit.
3. With an increase in healthy habits, fast food firms will face decreased demand. And firms will earn a negative economic profit. As a result, some firms will exit the market. And in the long run, existing firms will make zero economic profit.
4. With less demand, firms will earn a negative economic profit, and some firms will exit the market. As a result, existing firms will earn zero economic profit in the long run.
5. With less demand, firms will earn a negative economic profit, and some firms will exit the market. As a result, existing firms will earn zero economic profit in the long run.

 

 

 

 

 

1. With an increased gym membership, gyms will earn a positive economic profit. As a result, more firms will enter the market, and demand for the individual gym will decrease, and therefore the price will decrease. And hence firms will earn zero economic profit in the long run.

Question Four

Airline industry

 

Question Five

1. If they cooperate, they will choose the price that gives both the same and Equal and higher Profit.

selecting a high price gives both 40$ profit while choosing lower price gives 30$

To maximize their advantage, they want a lower price as collusion.

1. If they don’t cooperate, they will choose the move that will best for them given competitor move.

In each given case of opponent either a lower or high price, the best price for a firm/ player is choosing a lower price.

In competition, both will choose a lower price and earn 30$ each.

1. Given delta airlines, choosing lower prices, Southwest airline’ best move is to determine more economical prices.

And given Delta airlines choosing a high price, Southwest airline’ best move is to determine lower price.

Regardless of what delta airlines choose, the best move for Southwest airlines is to determine lower prices. And same for Delta airlines.