1. Consider two industries about which you have been given the following information:

Industry	Herfindahl index value	Four-firm concentration ratio
A	7500	80
B	1000	20

• Interpreter the values of four-frim concentration ratio and Herfindahl index in each industry.

• Which of the two industries is populated by a few large firms?

• Which by a larger number of firms?

• In which industry some of implicit collusion may occur? Why?

1. A) What does it mean to say that a monopolist is price discriminating? (2 points)

B) What are the two keys that enable a monopolist to successfully price discriminate?

1. If monopolists meets the keys from above, and market quantity demanded at a price of $10 is 2000 and the quantity demanded at a price of $8 is 2400, then monopolist would earn higher profit by:

• Charging all consumers the price of $10 and selling 2000 units.

• Charging all consumers $8 in order to increase quantity sold to 2400.

• Selling 2000 units for $8 each, then selling an additional 400 units for $10 each.

• Selling 2000 units for $10 each, then selling an additional 400 units for $8 each

1. Despite the fact that the Quick-Buzz Coffee Company provides a coupon in the local

newspaper that can be redeemed for $1 off the price of its best-selling coffee beans, not all buyers actually use the coupon. The most likely explanation for this is that:

• all coffee drinkers have a highly elastic demand.

• all coffee drinkers have a highly inelastic demand.

• the coffee drinkers who use the coupons have less elastic demand than the coffee drinkers who pay full price.

• the coffee drinkers who use the coupons have more elastic demand than the coffee

• drinkers who pay full price.

1. Cost-conscious consumers use cents-off coupons when purchasing items such as soap or frozen dinners. As a result, they pay a lower price. This is an example of:

1. first degree price discrimination B) breaking even.

C)quantity discrimination. D) third degree price discrimination.

3. The table below shows the demand and cost data facing "Velvet Touches" a monopolistically competitive producer of velvet pillows. Use the data to answer the following questions

Q Price TR MR Total Cost Marginal Cost

1 30 32

2 28 43

3 26 53

4 24 64

5 22 76

6 20 90

7 18 106

8 16 126

1. Fill-in the missing values in the table.

1. Refer to the table. The Velvet Touches should produce _____ units to maximize and charge

price ________ to maximize profit:

a. 4 ; $ 24 b. 7, $18 c. 5; $22 d.3, $26

C) How the Velvet Touches chooses its profit maximizing output and price? Explain briefly.

1. The firm total profit/loss at the profit maximizing output and price is:_____

a. ( -$ 25) b. $34 c.$56 d. (-$ 8)

1. What should the firm and other firms in velvet throw pillows industry expect in the long-run?
2. Some firms will exit the market c. Some firms will shut down
3. New firms will enter the market d. There will be no entry, no exit.

1. In the long-run the firm's demand curve will become ________ elastic and the firm will earn profit/loss of $_________,.

a. less ; $34 b. more; $0 c. less, $$56 d. more, $10

1. Does a product always have to sell for the same price everywhere? Briefly explain.

1. How is the demand curve for a monopolistically competitive firm different from the demand curve for a monopoly or a perfectly competitive firm?

1. If the firms in a monopolistically competitive market are earning economic profits or losses in the short run, would you expect them to continue doing so in the long run? Why?

1. Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product.

• How will that affect the price it charges and the quantity it supplies?