Microeconomics

1. Monopolistic Competition Consider the market for street food vendors. For simplicity, assume that they all sell a similar variety of food. Assume that consumers' preference for the food of a particular vendor is exogenously determined and necessarily a function of the rm's actions. Also assume that the marginal cost of production is constant and there are no xed cost and freeentry. (a) Show graphically how the price set by each food vendor is a function of consumers' preference. (b) Show graphically how the optimal price and production choice are a function of the average market price. (c) If the average price is greater than the average total cost. What will happen to the average price in the industry in the longrun? What are the expected longrun prots? (d) Do you think consumers will be betteroff if all vendors were owned by a single rm? (e) Do you think consumers Will be betteroff if all the food was of the same type (i.e. no product differentiation)? Explain.|