Question 1. (10 points)Which characteristics make a monopolistically competitive firm competitive?

Question 2.(10 points)Why P = MC cannot be a condition for an optimal quantity of output for a monopolistic firm?

Question 3. (10 points)What is the difference between a perfectly competitive market and a monopolistically competitive market in terms of the immediate consequence of the entry by new firms?

Question 4.(20 points)Consider the following cost information for a firm that operates in a perfectly competitive market.

Q (quantity of output)

Total cost ($)

0

12

2

28

4

38

6

52

8

70

10

92

12

120

(1) Suppose that the market price is $9.Find the quantity of output that the firm should produce in the short run.

(3)Suppose that the market price drops from $9 to $7.Find the quantity of output that the firm should produce in the short run.

Question 5.(30 points)Consider a competitive firm whose cost is given by

C = 60 - 4Q + 6Q² .

The product sells at $20 per unit.

(1) Find the optimal quantity of output in the short run.

(2) Evaluate the profitability of the optimal quantity of output that you found in (1).If it is a loss, make a decision whether or not the firm should shut-down.Provide a reason for your decision.

(3) What long-run adjustments should you expect?Explain.

Question 6.(20 points)Consider a monopolistically competitive firm whose cost is given by C = 2 + 2Q + Q², and its demand function is given by

Q =32 - 4P.

(1) Find the optimal price and quantity of output in the short run.

(2) What long-run adjustments should you expect?Explain.