1.

A small town is served by many competing supermarkets, which have the same constant marginal cost.

a. Using a diagram of the market for groceries, show the consumer surplus, producer surplus, and total surplus.

b. Now suppose that the independent supermarkets combine into one chain. Using a new diagram, show the new consumer surplus, producer surplus, and

total surplus. Relative to the competitive market, what is the transfer from consumers to producers? What is the deadweight loss?

2.

Under what conditions a firm will shut down temporarily or exit a market? Discuss by giving practical examples.

3.

Describe the difference between foreign direct investment and foreign portfolio investment. Who is more likely to engage in foreign direct investmenta corporation or an individual investor? Who is more likely to engage in foreign portfolio investment?