Q1.

Company Rho operates in a perfectly competitive market and is incurring economic losses. a. Draw correctly labeled side-byside graphs for the market and for Company Rho. Label the axes and: i. the market price (PE) and market quantity (QE) ii. the rm's quantity of output (05) iii. the rm's average total cost (ATC) iv. completely shade the area of consumer surplus in the market b. What will happen to the market price and Company Rho's prots in the long run if it remains in the market? Explain. Company Omicron and Company Pi are the only sellers of a good with no close substitutes. They are each considering whether to maintain or raise their prices. They project the following daily profit payoff scenarios: Company Pi Increase Price Maintain Price Company Omicron Increase Price $80, $180 $70, $280 Maintain Price $60, $80 $50, $230 a. Does Company Omicron have a dominant strategy to maintain their price, increase their price, or no dominant strategy? b. Does Company Pi have a dominant strategy to main ain their price, increase their price, or no dominant strategy? 0. Assuming no cooperation, what will the profit be for each rm? d. The government offers a $30 subsidy to the firms if they do not increase their prices. Draw a new payoff matrix reflecting the subsidy. e. Assuming no cooperation, what will the profit be for each rm after the subsidy? Company Delta is a profitmaximizing monopolist currently earning normal prot. a. Draw a correctly labeled graph for Company Delta. Label the axes and: i. Profitmaximizing price (PE) ii. Profit-maximizing quantity (QE) iii. Socially optimal quantity (Q30) b. Is this firm productively efficient? Explain. c. Shade the area of deadweight loss. d. Assume this monopolist became able to perfectly price discriminate. Identify if the following would increase, decrease, or remain constant: i. The firm's profitmaximizing quantity of output ii. Deadweight loss e. Company Delta hires in a perfectly competitive labor market. Draw a correctly labeled labor market graph, labeling the axes, equilibrium wage (We), and equilibrium quantity of labor employed (0.5). f. The government introduces a required licensing exam for the labor company Delta uses. Illustrate the effect of this new requirement only on the graph from part (e). 9. Will the marginal revenue product of the last unit of labor employed increase, decrease, or stay the same