Question 1

Imagine that the market for brooms is perfectly competitive. Biff's Brooms is a business the makes and sells brooms. Biff's Brooms has ordinary cost curves with the following data points: MC = min. AVC = $3.70/broom at 50 units; MC = min. ATC = $4.75/broom at 70 units of production; and at q = 100, MC = $7/broom, ATC = $5.50/broom. The market has been in LR equilibrium but demand for brooms increases because of "Spring cleaning". Explain to Biff how & why to make his business decisions "right now", "soon (but still in the short-run)", and "in the long-run." What happens in the overall market for brooms?

• Explainand illustratewith correctcurrentEcon40diagrams.
• Use appropriatecurrentEcon40 concepts & tools in a well-formedwritten(prose) explanation.

Question 2

What if, instead of beingperfectly competitive, the market for brooms wasmonopolizedand Zari's Brooms was the monopoly firm (as illustrated below). Explain to Zari how & why to make her business decisions in this situation. What happens in this overall market for brooms?

• Explainand illustratewith correctcurrentEcon40diagrams.
• Use appropriatecurrentEcon40 concepts & tools in a well-formedwritten(prose) explanation.

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