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JATA 200 4. Monopolistic Competition Draw a monopolistically competitive firm in long-run equilibrium. Explain why the firm is not allocatingly efficient or productively efficiency. Define excess capacity and identify it on the graph ( /5) 5. Oligopolies Complete the following questions: City Wheels Maintain Fare Lower Fare $130. $120 Maintain Fare $150, $180 Easy Ride $120, $130 $140, $110 Lower Fare (a) If Easy Ride chooses to maintain its current fare, which strategy is better for City Wheels? Explain. (b) Is there a dominant strategy for Easy Ride? Explain. (c) Assume that the companies must make their decisions simultaneously and do not cooperate. What will be the daily profit for each firm? (d) If these two firms could cooperate, which strategy would each firm choose? (e) Suppose that the local government decides to provide a subsidy of $40 per day to the bus companies. However, only a company that agrees to lower its fare is eligible to receive the subsidy. Draw a new payoff matrix to reflect the change in government policy