6. Suppose there are two firms producing DVD players. The average total cost and marginal cost of producing DVDs are the same for both firms, and are such that only two firms can exist in the industry. These cost curves are shown in Figure 1. The smallest production facility that can be built is with a minimum efficient scale of 350 DVDs. Figure 2 shows the marginal cost, demand and marginal revenue in the entire industry. Study both graphs and answer the questions below. Price FIGURE 1 Price FIGURE 2 MC ATC MC 100 100 95 80 MR ! 250 350 Quantity 500 700 Quantity a. At the competitive solution, how many DVDs will be produced? What is the profit in the entire industry and for each firm? (2 marks) b. If both firms collude and form a joint monopoly, how many DVDs will be produced? What is the profit in the entire industry and for each firm? (2 marks) c. If one firm decides to cheat and produce 100 more DVDs, the market price of a DVD drops to $90. Note that, according to Fig. 1, by doing this, the ATC for the cheating firm decreases to $80. Should the firm cheat? (2 marks) d. Construct the payoff matrix of strategic pricing for each firm, and identify the optimal strategy of each firm, assuming that both firms cannot detect cheating. (2 marks)7. The first graph below is for Chic and Sharpe Lid., a firm in the women's garment industry, which is monopolistically competitive. a. Label the four curves in the first graph. (0.5 mark) MC AC Costs and revenues Costs and revenues Quantity per period Quantity per period f. What is the amount of excess capacity for this firm? (0.5 mark) b. What areas in the graph above represent: total cost: total revenue; and economic profit? (2 marks) c. On the second graph below, sketch in the effect of entry by new firm's into this industry and label the new price and quantity traded as P2 and Q2 (2 marks) Price P1 Q1 Q2 Quantity per period d. Using the average/marginal cost curves in the third graph below, sketch in the firm's new demand and marginal revenue curves that would be consistent with zero economic profits. Label the equilibrium price and quantity traded as P2f and Q2f. (2 marks) e. On the third graph indicate with Qc the capacity output for the firm. (0.5 mark)1. In the following figure, graph A shows the market demand and supply in a competitive market and graph B shows the cost curves of a representative firm in that industry. FIGURE 8.17 LucLac a. What is the market equilibrium price and quantity? (0.5 mark) b. At equilibrium, what quantity is the firm producing, and what is its total profit or loss? Suppose that the market demand decreases by 300 units. (0.5 mark) c. What is the new equilibrium price and quantity? (0.5 mark) d. At this new equilibrium, what quantity is the firm producing, and what is its total profit or loss? (You may assume that price is above AVC.) (0.5 mark) 2. Suppose that at a particular output level a firm's MR = MC = $15 and its AVC = $12. Should a perfectly competitive firm shut down or continue to operate? (1 mark)5. The table below shows the costs and demand for the Primrose Oil industry. Quantity Price Total Cost 0 $86 $40 82 70 78 90 74 120 4 70 160 5 66 210 62 272 7 58 348 8 54 440 a. If this were a perfectly competitive industry, what would be the price, output and total industry profit? (2 marks) b. If, alternately, this were a monopoly industry, what would the price, output, and total profit? Hint: Calculate [TR; MR; MC] (2 marks)4. Table 1 shows the cost structure for a perfectly competitive firm of which there are a total of 50 in the industry and Table 2 shows the market demand and market supply schedules, Q MC ATC 200 17 26 800 19 25 100 21 24 500 23 23 500 25 24 700 27 26 300 29 29 Table 2 P) Qd 17 80000 10000 19 40000 15000 21 20000 20000 23 10000 25000 25 500 30000 27 2500 85000 29 1250 40000 mark) a. What is the equilibrium price? At this price what quantity will the firm produce? (0.5 b. Is the perfectly competitive firm earning an economic profit or loss in the short-run? How much? (0.5 mark) c. In the long run, what is the economic profit of the competitive firm? (0.5 mark) d. What will the equilibrium price and quantity traded in the long run? (0.5 mark) e. What quantity will the firm produce in the long-rum? (0.5 mark) f. How many firms will exist in the long-run? (0.5 mark) g. Is the representative perfectly competitive firm achieving efficiency? (0.5 mark)3. The figure below shows the demand and supply of a certain product. MSC MPC Price MPB MSB 12 18 24 30 36 42 48 Quantity per period a) If this depicts an unregulated market what would be the equilibrium price and quantity? (1 mark) b) If this product was taxed by an amount equal to the external costs, what would be the equilibrium price and quantity? (1 mark) c) Alternatively, if buyers of this product were subsidized by an amount equal to the external benefits, what would be the equilibrium price and quantity? (1 mark) d) Finally, if this product were both taxed and subsidized by an amount equal to the external costs and benefits, what would be the equilibrium price and quantity? (1 mark)