The state of Connecticut sets a maximum fee that bail-bond businesses can charge for posting a given-size bond (Ayres and Waldfogel, 1994). The bail-bond fee is set at virtually the maximum amount allowed by law in cities with only one active firm (Plainville, 99% of the maximum, Stamford, 99%; and Wallingford, 99%). The price was as high in cities with a duopoly (Ansonia, 99.6%, Meriden, 98%, and New London, 98%). However, in cities with 3 or more firms, the price fell well below the maximum permitted price. The fees were only 54% of the maximum in Norwalk with 3 firms, 64% in New Haven with 8 firms, and 78% in Bridgeport with 10 firms. Give possible explanations for this pattern. Assume that markets with multiple bail-bond firms (n firms) are oligopolistic, produce a homogenous good, face a linear inverse market demand of p = a - bQ, and have constant marginal costs of m per unit. Also assume that the market outcome is a Nash-Cournot equilibrium. Markets with one or two firms charge prices (fees) that are essentially equal to the maximum but markets with more than two firms charge prices (fees) that are less than the maximum because the state maximum O A. is less than or equal to a + 2m 3 - but greater than a + 3m O B. is less than or equal to a + 4m 5 O C. is less than or equal to - atm a + 2m 2 but greater than 3 OD. is greater than a +m 2 O E. is less than or equal to a + 3m but greater than - a + 4m 4 5You are given the market demand function 0 = 3400 - 1000p, and that each duopoly rm's marginal cost is $0.28 per unit, which implies the cost function: G (qt) = 0.280\Market structure has implications for a firm's protability. Which of the following statements is true? 0 A. Because it possesses signicant market power, an oligopoly rm will always earn positive economic profits in the long-run. O B. A monopolist maximizes prot by producing at the quantity where marginal revenue equals marginal cost, but a competitive rm, being a price taker, must maximize revenue. 0 C. A competitive rm maximizes prots by producing at the quantity where marginal revenue equals marginal cost. 0 D. A monopolistic rm, since it faces a downward-sloping demand curve, can earn positive economic prots in the long-run. Suppose there is a monopolistically competitive market with n identical firms, such that each firm produces the same quantity, q. Further, the market is in the monopolistically competitive long-run equilibrium. You are given the following: Inverse market demand: P = 10 - Q Total market output: Q = n x q Marginal revenue: MR = 10 - (n + 1) x q Total cost: C(q) =5+ q2 Marginal cost: MC = 2x q In long-run equilibrium, each firm earns profit. In long-run equilibrium, the number of firms, n, is , and each firm produces unit(s) of output at an equilibrium price of $ . (Read carefully. The number of firms must be an integer. Round output to three decimal places and round the price to the nearest penny.)In the Challenge Solution's mathematical model, how much does Firrn 1's prot change as the subsidy, s, increases? In the Challenge Solution, assume two rms face an inverse demand function of p = a - b0, and the marginal cost of each firm is m. A per-unit subsidy, s, given to both firms, reduces each firm's after-subsidy marginal cost to m s. The best-response function for Firm 1 is _ a - m + s 1 q' ' 2b 2 ('2 and the best-response function for Firm 2 is a - m + s 1 Solving, each firm maximizes profits by producing such that A change in the subsidy changes each rm's prot by (hi as for i = 1 and 2. (Propey format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a superscript can be created with the A character.)