Q1, The Counter-Strike company just developed a new computer game, on which it immediately acquires a patent.

(a) Draw a diagram that shows the consumer surplus, producer surplus and total surplus in the market for this new game.

(b) What happens to these three measures of surplus if the firm can perfectly price discriminate? What is the change in the deadweight loss? Illustrate using another diagram.

Q2,

The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.

Referring to the graph below and calculate each one.

Note: Full marks will be awarded if the calculation is correct, definitions are not required.

1. Profit-maximising output level
2. Profit-maximising price
3. Total revenue
4. Total cost
5. Total profit or loss

Q3, What is likely to happen in this industry in the long run? Illustrate your answers using a similar diagram shown below (with Demand, MR, ATC and MC curves).