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1. Describe, and show by graph, the relationship between marginal cost and average cost. 1. Under what conditions should a competitive firm shut down in the short run? Also show it in a graph. 2. How does the demand curve for monopolist firm differ from the demand curves for firms in competitive market structures? Show it by graphs. 3. The diagram below shows supply and demand in a perfectly competitive local market for cubic metres (m3) of garden soil. a. At the equilibrium market price, determine the following values: total revenue received by sellers consumer surplus producer surplus total economic surplus b. Now suppose that sellers in this market cooperate and restrict their total output to 30m3 per day. At the resulting price of $45 per m3,m3, determine each of the same values as in part (a). c. What is the change in consumer surplus when output is restricted? What is the change in producer surplus? d. What is the deadweight loss to the economy in this market when output is restricted? Show the area of this loss in the diagram. 4. The table is the payoff matrix for a simple two-firm game. Firms A and B are bidding on a government contract, and each firm's bid is not known by the other firm. Each firm can bid either $10 000 or $5000. The cost of completing the project for each firm is $4000. The low-bid firm will win the contract at its stated price; the high-bid firm will get nothing. If the two bids are equal, the two firms will split the price and costs evenly. The payoffs for each firm under each situation are shown in the matrix. B bids A bids $10 000 A bids $5000 Firms share the contract A wins the contract Payoff Payoff to A=$3000A=$3000 to A=$1000A=$1000 Payoff Payoff to B=$0B=$0 $10 000 to B=$3000B=$3000 B bids B wins the contract Firms share the contract Payoff to A=$0A=$0 Payoff $5000 to A=$500A=$500 Payoff Payoff to B=$1000B=$1000 to B=$500B=$500 a. Recall from the text that a Nash equilibrium is an outcome in which each player is maximizing his or her own payoff given the actions of the other players. Is there a Nash equilibrium in this game? b. Is there more than one Nash equilibrium? Explain. c. If the two firms could cooperate, what outcome would you predict in this game? Explain