(a) An oligopolistic firm, estimates the following demand functions as:

P1 = 9 - 0.3Q for price increase

P2 = 10 - 0.4Q for price decrease

The firm's total cost function is:

TC = 25 =+1.5q + 0.05Q2

i) Define price rigidity.

ii) Prove the price is rigid.

iii) Define third degree price discrimination. Explain any two (2) of the objectives of price discrimination.

(b) A perfectly competitive firm has the following short-run total cost function:

TC = 4000 + 20Q + 0.4Q2

i) If price is RM60 per unit, determine its profit maximizing or loss-minimizing output for the short run.

ii) Sketch a diagram to illustrate the above situation.

iii) Discuss whether the firm should shut down or continue their production