PLEASE ANSWER ALL QUESTIONS

1. Conditions for monopolistic competition Consider the monopolistically competitive market structure, which has some features of a perfectly competitive market and some features of a monopoly. Complete the following table by indicating whether each attribute characterizes a perfectly competitive market, a monopolistically competitive marke both, or neither. Check all that apply. Attributes Perfectly Competitive Market Monopolistically Competitive Market Perfect information O O Many sellers O ad Identical products O O O ad Product differentiation 2. How short-run profit or losses induce entry or exit Fantastigue Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average cost curve (AC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopalistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 AC 300 Profit or Loss PRICE (Dollars per bike) 250 200 150 100 MC 50 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are shops in the industry than in long-run equilibrium.Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. \f3. Is monopolistic competition efficient? Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average cost (AC) curve. Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Ne place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competiti market. 100 90 80 Monopolistic Competition Outcome 70 60 Perfectly Competitive Outcome 50 PRICE, COSTS, AND REVENUE (Dollars per racquet) AC 40 30 D 20 10 MR 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of racquets)Compare the average cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Average Cost Production Level Under... (Dollars per racquet) (Thousands of racquets) Monopolistic Competition L 1 [ ] Perfect Competition E E Because this market is 2 monopolistically competitive market, the firm's average cost in long-run equilibrium is the long-run average cost it would achieve as a firm operating in a perfectly competitive market. The production level of a monopolistically competitive firm in long-run equilibrium is W the production level of a perfectly competitive firm. This difference in output is predicted by the v 4. Characteristics of oligopoly An oligopoly market structure is distinguished by several characteristics, one of which is market control by a few large firms. What are some other characteristics of this market structure? Check all that apply. [J No entry Either homogeneous or differentiated products Mutual interdependence Differentiated products only 6. Understanding the kinked demand curve model Happyland is one of five amusement parks on Sunshine Island. The following graph shows Happyland's kinked demand curve (D1 - D2) and the resulting marginal revenue curve (MR1 - MR2). The graph also shows two possible marginal cost curves (MC, and MC2).\fAssume Happyland's marginal cost is represented by MC . Happyland will set a price of % per ticket. According to the kinked demand curve model, if one firm W its price, other firms will do likewise to retain their market share, but if one firm W its price, other firms will not follow suit. Therefore, if one of Happyland's competitors increases its price to above the price you just found for Happyland, Happyland will v . The basic principle behind the kinked demand curve model explains why the Iy portion of the kinked demand curve is relatively % elastic than the D5 portion. If Happyland's marginal cost decreased from MC; to MC5 on the graph, Happyland would v . 7. Game theory terminologyl| Select the term that best describes each definition listed in the following table. each of them makes Zero Nash Dominant Maximin Credible Payoff Sum Definition Equilibrium Strategy Criterion Threat Matrix Gam The strategy where players select the strategy that yields the maximum payoff on the assumption that the O O O O O O opponent will do as much damage as it can A player's best choice, if it exists, that will yield a higher payoff than any of the other strategies that are possible, ) ) O O O O @) O no matter what choice of strategy is made by other players The result that occurs when each player adopts the strategy that gives the highest possible payoff if the rival O O O O O O sticks to the strategy it has chosen A visual representation of how much each of two players can expect to earn, depending on the strategic choices O O O O O O 8. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell digital cameras, Picturesque and Capturemania. The following payoff matrix shows the profit (in millions of dollars) each company will earn, depending on whether it sets a high or low price for its cameras. Capturemania Pricing High Low High 1,11 2,18 Picturesque Pricing Low 18,2 10, 10 For example, the lower left cell shows that if Picturesque prices low and Capturemania prices high, Picturesque will earn a profit of $18 million and Capturemania will earn a profit of $2 million. Assume this is a simultaneous game and that Picturesque and Capturemania are both profit-maximizing firms. If Picturesque prices high, Capturemania will make more profit if it chooses a low W price, and if Picturesque prices low, Capturemania will make more profit if it choosesa 9 price. @ If Capturemania prices high, Picturesque will make more profit if it chooses a W price, and if Capturemania prices low, Picturesque will make more profit if it chooses a "W price. Considering all of the information given, pricing high W a dominant strategy for both Picturesque and Capturemania. If the firms do not collude, which strategy will they end up choosing? O Picturesque will choose a high price and Capturemania will choose a low price. O Picturesque will choose a low price and Capturemania will choose a high price. O Both Picturesque and Capturemania will choose a low price. O Both Picturesque and Capturemania will choose a high price. True or False: The game between Picturesque and Capturemania is an example of the prisoners' dilemma. O True O False @ Consider a remote town in which two restaurants, All-You-Can-Eat Cafe and GoodGrub Diner, operate in a duopoly. Both restaurants disregard heal and safety regulations, but they continue to have customers because they are the only restaurants within 80 miles of town. Both restaurants know that if they clean up, they will attract more customers, but this also means that they will have to pay workers to do the cleaning. If neither restaurant cleans, each will earn $14,000; alternatively, if they both hire workers to clean, each will earn only $11,000. However, if one cleans and the other doesn't, more customers will choose the cleaner restaurant; the cleaner restaurant will make $18,000, and the other restaura will make only $6,000. Complete the following payoff matrix using the previous information. (Note: All-You-Can-Eat Cafe and GoodGrub Diner are both profit-maximizing firms.) GoodGrub Diner Cleans Up Doesn't Clean Up Cleans Up $ $ $ $ All-You-Can-Eat Cafe Doesn't Clean Up $ $ If All-You-Can-Eat Cafe and GoodGrub Diner decide to collude, the outcome of this game is as follows: All-You-Can-Eat Cafe GoodGrub Diner If both restaurants decide to cheat and behave noncooperatively, the outcome reflecting the unique Nash equilibrium of this game is as follows: All You-Can-Eat Cafe , and GoodGrub Diner10. Games in which timing matters Consider an economy in which there is initially one firm, HealthyBran, in the market for breakfast cereal. A new firm, TastyCereal, is deciding whether to enter the market, which would then change the market to a duopoly. HealthyBran can choose to sell its cereal to grocery stores at either a high or a low price. As a monopolist, it can earn $7 million by selling at a high price or $4 million by selling at a low price. If TastyCereal enters the market and HealthyBran sells at a high price, each firm makes $2 million; if TastyCereal enters the market and HealthyBran sells at a low price, each firm has a loss of $2 million. Suppose that HealthyBran can't set long-term contracts with the grocery stores that sell its cereal. The following diagram shows this game: first, TastyCereal decides whether to enter or not, and then HealthyBran decides whether to sell at a high or low price. Suppose HealthyBran issues a press release saying that if TastyCereal enters the market, it will sell at a low price. If TastyCereal decides to enter the market despite the threat, HealthyBran would earn W if it chose to set a low price, and it would earn W if it chose to set a high price. Therefore, HealthyBran's threat W credible, and TastyCereal W enter the market. Now suppose that HealthyBran can sign long-term contracts with grocery stores at a set price before TastyCereal decides whether or not to enter. The following diagram shows this game: -$2 Million for HealthyBran Low Price -$2 Million for TastyCereal B Enter $2 Million for HealthyBran High Price A $2 Million for TastyCereal $4 Million for HealthyBran Low Price Don't Enter $0 Million for TastyCereal C High Price $7 Million for HealthyBran $0 Million for TastyCereal TastyCereal decides HealthyBran decides$2 Million for HealthyBran Enter $2 Million for TastyCereal B Low Price $4 Million for HealthyBran Don't Enter A $0 Million for TastyCereal $2 Million for HealthyBran Enter High Price $2 Million for TastyCereal C Don't Enter $7 Million for HealthyBran $0 Million for TastyCereal HealthyBran decides TastyCereal decidesIf HealthyBran decides to sign a contract at a low price, TastyCereal would earn if it chose to enter the market, and it would earn if it chose to stay out. Therefore, if HealthyBran signed a contract at a low price, TastyCereal enter the market, an HealthyBran would earn On the other hand, if HealthyBran decides to sign a contract at a high price, TastyCereal would earn if it chose to enter the market, and it would earn if it chose to stay out. Therefore, if HealthyBran signed a contract at a high price, TastyCereal enter the market, and HealthyBran would earn Anticipating TastyCereal's response to its pricing contract, HealthyBran will sign a contract at a price.For each of the following scenarios, identify the number of firms present, the type of product, and the appropriate market model. Select the matchin entry for each dropdown box in the following table. Number of Scenario Firms Type of Product Market Model v w w There are hundreds of colleges and universities that serve millions of college students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. | 4 4 Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care about who sells them their socks. The technology for producing socks is widely known, and any reputable person who wanted to start a sock manufacturing business could obtain a loan from a bank to buy the necessary machinery. | 4 4 In a large city, two taxi companies own all the licenses that the city will grant to operate taxis. Consumers don't care which cab company they takeif they decide it's worth taking a cab, they flag down the nearest one. The government has granted the U.S. Postal Service the exclusive right to deliver mail