Question
Student Read each question carefully. Be sure to answer ALL of 3 questions. Complete the following: a. Draw a graph for a perfectly competitive firm
Student Read each question carefully. Be sure to answerALLof 3 questions.
- Complete the following:
a. Draw a graph for a perfectly competitive firm in the short run, illustrating both of the following two situations (include ATC, AVC, MC & MR):
- An economic profit less than zero.
- The firm is able to cover all its fixed costs.
b. Should the firm shut down in the short run? Explain.
c. Describe the transition from the short run to the long run in this perfectly competitive industry. How do you know when the transition is complete?
d. Draw the long run equilibrium graph for this firm.
2. Complete the following:
a. Compare the efficiency of a monopoly firm compared to a perfectly competitive firm, in terms of output efficiency.
b. Draw a graph clearly illustrating the deadweight loss associated with monopoly.
3. Consider a duopoly candy industry: Nutty Fudge and Sweet 'n Sour. Each firm must decide how much to spend on advertising. Each firm can either spend a large amount on advertising (Big Ad) or a small amount on advertising (Low Ad). The Payoff matrix below illustrates the profit outcomes.
Sweet 'n Sour's Strategies | |||
Big Ad | Low Ad | ||
Nutty Fudge's Strategies | Big Ad | $8, $8 | $20, $7 |
Low Ad | $5, $22 | $15, $15 |
a. Assume a non-cooperative game. Is there a dominant strategy? If yes, what is it?
b. Is there a Nash Equilibrium? If yes, what is it? Explain.
c. What is the collusive outcome?
d. Is the collusive outcome a stable equilibrium? Explain.
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