ANSWER WITH EXPLANATION

Q1 Consider the following data regarding a monopoly firm and answer the questions given below it. 12 marks

Quantity	1	2	3	4	5	6	7
AR	96	87	78	69	60	51	42
MR	96	78	60	42	24	6	-12
AC	144	90	70	63	60	58.5	57.86
MC	144	36	30	42	48	51	54

1. What will be the price, output and profit/loss for a regulated monopolist that sets price according to Marginal Cost Pricing control system?

Price = Output = TR = TC =

Total Profit/loss = Profit/loss per unit =

1. What will be the price, output and profit/loss for a regulated monopolist that sets price according to Fair Return Pricing control system?

Price = Q = AC =

TR = TC =

1. Find the level of price, output and amount of profit/loss for an unregulated monopolist.

Price = Output = TR = TC =

Total Profit/loss = Profit/loss per unit =

Q2 Important differences exist between perfect competition and monopoly markets. Show your understanding of these differences by listing the following terms under the particular type of market structure. Enter appropriate number only under the specific type of market. 5 marks

1 Very large number of buyers and sellers 2 No close substitutes

3 Downward sloping demand curve or AR curve 4 Horizontal demand curve

5 Upward sloping total revenue curve 6 Firm is a price maker

7 AR = MR = Price 8 Atomistic competition

9 Single seller, many buyers 10 Patent rights

11 Barriers to entry 12 Firm is a price taker

Perfect competition	Monopoly

Q3Consider the following cost data for a perfectly competitive producer to answer the questions given below it. 12 marks

Q (UNITS)	AFC ($)	AVC ($)	ATC ($)	MC ($)
0	------	------	------	------
1	60	45	105	45
2	30	42.5	72.5	40
3	20	40	60	35
4	15	37.5	52.5	30
5	12	37	49	35
6	10	37.5	47.5	40
7	8.57	38.57	47.14	45
8	7.5	40.63	48.13	55
9	6.67	43.33	50	65
10	6	46.5	52.5	75

a) Will this firm produce in the short period if the product price is $62? What will be the total profits or loss of the firm?

TR = TC = Profit or loss =

Decision:

b) Will this firm produce in the short period if the product price is $41? What will be the total profits or loss of the firm?

TR = TC = Profit or loss =

Decision:

C) What will be the profit/loss of the firm if the product price is $34? Will it be beneficial to shut down the production? Why?

TR = TC = Profit or loss =

Decision:

Q4 Complete the following table and answer the questions given below. (Use TR and TC approach). Given price = $8 per unit. 10 marks

Output (units) (Q)	TR ($)	TC ($)	MR	PROFITS ($)
0		18	----
1		20
2		22
3		24
4		27
5		31
6		37
7		46
8		58
9		90
10		150

What is the break-even level of output? Why?

What is total fixed cost (TFC)? Why?

What are the levels of output where the firm gets losses? Why?

What are the total costs where another break-even level of output may occur?

What is the per unit profit at profit maximizing output?

Q5Suppose that an unregulated price-discriminating monopolist has segregated its market into two groups of buyers as shown in the tables below for Market-1 and Market-2. Assume that MC is $13 in both markets and MC = AC at all output levels.

Buyers in Market-1:

Price	Quantity Demanded	Total Revenue	Marginal Revenue	AC	TC	MC
$71	0			-------	0	------
63	1
55	2
48	3
42	4
37	5
33	6
29	7

Buyers in Market-2

Price	Quantity Demanded	Total Revenue	Marginal Revenue	AC	TC	MC
$115	0			------	0	------
100	1
83	2
71	3
63	4
55	5
48	6
42	7

• Complete the tables. 10 marks
• What price will the firm charge in each market? 2 marks

Price in Market-1= Price in Market- 2 =

• Based solely on these two prices, which market has the lower price elasticity of demand?Why? 3 marks

• What will be this monopolist's total economic profit in these two markets? 5 marks

Q6 Suppose that eight coffee shops have market share in the local coffee market as 28, 10, 15, 12, 8, 6, 4 and 17 percent (as percentages of total quantity of coffee sold).

• What is the fourfirm concentration ratio and HHI? What is the type of concentration? Why? 2 marks

Four Firm Concentration Ratio =

HHI =

Type of concentration:

• If the top 3 sellers combined to form a single firm, what would happen to the fourfirm concentration ratio and to the HHI? Is there any change in the type of concentration? Why? 2 marks

Four Firm Concentration Ratio =

HHI =

Type of concentration:

Q7 Consider the given diagram. Apply MC = MR approach for completing the table given below. 12 marks

Price or Cost MC (dollars/bushel) a ATC h 4.90 C AVC 3.90 de g 3.10 h m kl 1 1.90 n 1.10 P 0 13 18 24 37 46 50 54 Quantity (thousands of bushels/year)Dollars MC ATC per 10 Graph 1 MR D 10,000 - -- 12,000 13,000