1.Let's compare the price and output decisions of a competitive firm versus a monopoly by answering the following questions:

a.In Diagram 1 above, suppose the industry is a competitive one. What would be the price charged and quantity exchanged? Explain how you derived your answer.

b.Now, assume Diagram 1 represents an industry that is a monopoly. What would be the prevailing price and quantity exchanged? Explain.

c.Assume Diagram 1 represents an industry that is a monopoly. What would be the profit per week? Show your calculations.

d.At what point (C, E, F, G) on Diagram 1 does efficiency occur? Why?

2.For each of the following observations about an industry briefly explain whether it characterizes a firm that is perfectly competitive or not perfectly competitive.

a)The firms are spending lots of money on advertising.

b)The firms are currently making economic profits in the short run.

c)Two firms produce 60 percent of the total industry output.

d)The firms issue coupons offering a price discount.

$Price or Unit C B m 64 A G 71 30 MC D MR 0 200 500 Quantity per week