QUESTION 2

a)In an oil seed market, there are 5000 producers with identical cost functions. Their cost function isC(q) = 125q²+ 200, where q is the number of bushels of oil seed produced in each period. If the local oil seed market is perfectly competitive, what is the Short-run supply curve of each producer? Also determine the market supply curve.(5marks)

b) The Long-run cost function for AV's e-scooter rental isC(q) = 2.5q². If AV can sell as many scooters as he desires at $20, calculate his optimal output. Is AV able to earn economic profits? How do you know?(5marks)

QUESTION 3

a. What price should a monopolist charge if his MC=$50 and the price elasticity of demand is -3.5?(2 marks)

b. Jack a geographical monopolist is a city planner and an exclusive provider of cable TV service. He discovered the following demand and cost functions from his books of accounts:

P=100-10Q

TC = 5Q²+ 10Q

c. He has no knowledge of economics and has requested his son who is pursuing his graduation in economics to answer the questions below based on information provided:

d. What price and quantity will maximize his profits?(2 marks)

e. What are the socially efficient Price & Quantity that will prevail under conditions of competition?(2 marks)

What are the economic implications/welfare effects of (i) & (ii) above? (Hint: You have to calculate Producer Surplus, Consumer Surplus & Deadweight Loss under both situations)(4 marks)

QUESTION 4

Two organic emu ranchers, Bill and Ted, serve a small metropolitan market. Bill and Ted are Cournot competitors, making a conscious decision each year regarding how many emus to breed. The price they can charge depends onhow many emus they collectively raise, and demand in this market is given by Q = 150 - P. Bill raises emus at aconstant marginal and average total cost of $10; Ted raises emus at a constant marginal and average total cost of $20.

a)Find the Cournot equilibrium price, quantity, profits, and consumer surplus.(6 marks)

b)Suppose that Bill and Ted merge, and become a monopoly provider of emus. Further, suppose that Ted adopts Bill's production techniques. Find the monopoly price, quantity, profits, and consumer surplus.(4 marks)

QUESTION 5

a)OG & Services competes with MG & Services, both the firms sells exactly same quality of cement. The market demand for the cement is Qd=50 - 20P where Qd is the quantity demanded and P is the price. Thus, if the firms charge a different price, the lower price firm will grab the entire market share but if they charge same price, they will split the market share. The marginal cost functions for both the firms is constant at $1.25. If the two firms compete on the basis of price, what is the market output level and what is the market price.(5 marks)

b) The demand of a local fast food chain is Qd = 225 - 10P where Qd is the quantity demanded and P is the price. The market structure is best described as monopolistic competition. If C(q)=0.15Q2, is the cost function of the restaurant. Determine the profit maximizing level of output and price charged. Is the Lon-run equilibrium for the restaurant? How do you know?