Please answer all the questions

500 450 Monopolistically Competitive Outcome 400 350 AC Profit or Loss 300 250 PRICE (Dollars per bike) 200 150 100 MC 50 MR Demand 50 100 150 200 250 300 350 400 450 500 0 QUANTITY (Bikes) profit, which means there are Given the profit-maximizing choice of output and price, the shop is earning shops in the industry than in long-run equilibrium.2. How short-run profit or losses induce entry or exit Fantastique 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 monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 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 wool jackets 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 monopalistically competitive equilibrium price and quantity for this firm. Next, 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 competitive market. PRICE, COSTS, AND REVENUE (Dollars per jacket) 100 80 a0 70 60 50 40 30 20 10 Monopolistic Competition Outcome AC " Perfectly Competitive Outcome MR 10 20 30 40 50 60 70 80 a0 100 QUANTITY (Thousands of jackets) 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 jacket) (Thousands of jackets) Monopolistic Competition [ ] [ ] Perfect Competition E E Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is W 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 [J Either homogeneous or differentiated products [J Mutual interdependence [J Differentiated products only \fAssume Happyland's marginal cost is represented by MC5. Happyland will set a price of W per ticket. According to the kinked demand curve model, if one firm W its price, other firms will not follow suit, but if one firm W its price, other firms will do likewise to retain their market share. Therefore, if Happyland decreases its price to below the price you just found for Happyland, its competitors will v . The basic principle behind the kinked demand curve model explains why the Ds portion of the kinked demand curve is relatively # elastic than tl D1 portion. If Happyland's marginal cost increased from MCh to MC} on the graph, Happyland would v . 8. Using a payoff matrix to determine the equilibrium outcome Suppose there are only two firms that sell smart phones, Flashfone and Pictech. 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 phones. Pictech Pricing High Low High 9, 9 3, 15 Flashfone Pricing Low 15, 3 7, 7 For example, the lower left cell shows that if Flashfone prices low and Pictech prices high, Flashfone will earn a profit of $15 million and Pictech will earn a profit of $3 million. Assume this is a simultaneous game and that Flashfone and Pictech are both profit-maximizing firms. If Flashfone prices high, Pictech will make more profit if it chooses a _ price, and if Flashfone prices low, Pictech will make more profit if it chooses a price. If Pictech prices high, Flashfone will make more profit if it chooses a price, and if Pictech prices low, Flashfone will make more profit if it chooses a price.Considering all of the information given, pricing low a dominant strategy for both Flashfone and Pictech. If the firms do not collude, which strategy will they end up choosing? O Flashfone will choose a high price and Pictech will choose a low price. O Flashfone will choose a low price and Pictech will choose a high price. O Both Flashfone and Pictech will choose a high price. O Both Flashfone and Pictech will choose a low price. True or False: The game between Flashfone and Pictech is not an example of the prisoners' dilemma. O True O False9. Collusive outcome versus Nash equilibrium Consider a remote town in which two restaurants, All-You-Can-Eat Cafe and GoodGrub Diner, operate in a duopoly. Both restaurants disregard health 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 restaurant 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 and 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 whe 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 $6.5 million by selling at a | price or $3.5 million by selling at a low price. If TastyCereal enters the market and HealthyBran sells at a high price, each firm makes $1.5 million TastyCereal enters the market and HealthyBran sells at a low price, each firm has a loss of $2.5 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. -$2.5 Million for HealthyBran Low Price -$2.5 Million for TastyCereal B Enter $1.5 Million for HealthyBran High Price A $1.5 Million for TastyCereal $3.5 Million for HealthyBran Low Price Don't Enter $0 Million for TastyCereal High Price $6.5 Million for HealthyBran $0 Million for TastyCereal TastyCereal decides HealthyBran decides Suppose HealthyBran issues a press release saying that if TastyCereal enters the market, it will sell at a 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 if it chose to set a low price, and it wo earn if it chose to set a high price. Therefore, HealthyBran's threat credible, and TastyCereal enter market. Now suppose that HealthyBran can sign long-term contracts with grocery stores at a set price before TastyCereal decides whether or not to ente following diagram shows this game:\fIf HealthyBran decides to sign a contract at a low price, TastyCereal would earn if it chose to enter the market, and it would ea if it chose to stay out. Therefore, if HealthyBran signed a contract at a low price, TastyCereal enter the marke and 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