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Question 2 (15 marks) Consider a monopolistically competitive market for good X produced by firm A facing a demand function P = 1000 3Q. Firm
Question 2 (15 marks) Consider a monopolistically competitive market for good X produced by firm A facing a demand function P = 1000 3Q. Firm A's marginal cost and average total cost at a production level Q are respectively l143000 MC = 4Q and arc = + 4Q. a) What is the short-run economic prot or decit for rm A? (4 marks) b) Your student comments that in the long run rm A will earn zero economics prot, and therefore there is no deadweight loss in this market. Do you agree? Explain briey in terms of the concept of Pareto efciency. (4 marks) Now, the market for good X is changed into an oligopoly market. And good X is produced by rm A and B, which face a demand function P = 1000 SQ. Firm A's marginal cost and average total cost at a production level Q are respectively MC = 4Q and arc = 4%0+4Q. Firm B's marginal cost and average total cost at a production level Q are respectively MC = so and ATC =E%0+6Q. c) What is the market supply curve for good X? (1 mark) d) What is the market price and market output for good X if rm A and B cooperates as a cartel? (2 marks) e) What is the output and prot of rm A and B respectively, if they cooperate as a cartel? (4 marks)
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