Question

pls answer as many qwuestions!!

1. A market has an inverse demand curve and four firms, each of which has a constant marginal cost of. If the firms form a profit-maximizing cartel and agree to operate subject to the constraint that each firm will produce the same output level, how much does each firm produce? 2. Duopoly quantity-setting firms face the market demand curve. Each firm has a marginal cost of $60 per unit. a. What is the Nash-Cournot equilibrium? b. What is the Nash-Stackelberg equilibrium when firm 1 moves first? 3. Let's say Laurentian is considering renting space to either one or two textbook stores. The rent it charges for the space depends on profit of the firm. Which number of stores is better for Laurentian in terms of the rent? Which is better for the students? Why? 4. Consider a market with two firms that sell identical products. Firm 1 has a constant marginal cost of 1 and Firm 2 has a constant marginal cost of 2. The market demand is. a. Solve for the Nash-Cournot equilibrium price, quantities, profits, consumer surplus, and dead weight loss. b. If firms merge and produce at the lower marginal cost, how do the equilibrium values change? c. Discuss the changes as the firms merge. Show results graphically as well. 5. An incumbent firm, Firm 1, faces a potential entrant, Firm 2, with a lower marginal cost. The market demand curve is. Firm I has a constant marginal cost of $20, while Firm 2's is $10. a. What are the Nash-Cournot equilibrium price, quantities, and profits if government does not intervene? b. What happens to the Nash-Cournot equilibrium if government intervenes and causes the marginal cost of the second firm to rise to that of the first firm, $20? c. Now suppose there is no impact to the marginal cost, but the government intervention implements a fixed cost. What is the minimal fixed cost that will prevent entry? 6. How are monopolistic competition and perfect competition similar? How are they different? 7. Do firms in all market structures need to pay attention to rival firms' behaviour? Explain. 8. What shortcomings does the Bertrand model for homogenous goods have?

Answer 1

Answer to the 6th question

Perfect Competition is a market situation in which very large number of buyers and sellers operate freely and the commodity is sold at a uniform price.

Perfect competition is an extreme form of market which rarely exist in practice. The word perfect competition is used in economics with a different meaning. It is a market structure where there is no competition and there is no rivalry among the firms.

Features of perfect competition: A perfectly competitive market has the following features

1. Large number of buyers and sellers.

2. Homogeneous or undifferentiated or identical products.

3. Perfect mobility of goods and factors of production.

4. Perfect knowledge of market conditions.

5. Freedom of entry and exit.

6. Absence of government control.

7. Absence of selling cost.

Under perfect competition price of goods will always be equal to market price. At this price any quantity of a commodity will be available for sale and purchase in the market. Therefore, the price of every unit of a product sold by a producer will be the same. The producer is ready to sell any quantity in market price and the consumer is ready to buy it at that price.So every producer and consumer under perfect competition is called a price taking producer and a price taking consumer respectively.

Monopolistic Competition

Monopolistic Competition is a blend of monopoly and competition. It i s a market situation characterized by fairly large number of firms producing and selling differentiated goods and services. For example, the firms which produces consumer goods such as toilet soaps, shampoos, biscuits, tooth paste etc. It was Edward Chamberlin who popularized Monopolistic Competition through his book The theory of Monopolistic Competition, in 1956.

Features of Monopolistic Competition:

1. Fairly large number of buyers and sellers but the number is less than under perfect competition.

2. There will be product differentiation. The product of each firm is known by a brand name. Products of each firm will be different from those of other firms in quality , color, smell, taste etc.

3. firms can freely enter and exist from the market.

4. There will be selling costs like the expenses for advertisement, propaganda, coupons, gifts and other selling strategy.

5. Differences in price. Because of product differentiation prices also will be different.

COMPARISON:

In perfect competition, large number of firms, but in monopolistic competition, it is fairly large.

In perfect competition, products are homogeneous, but in monopolistic competition ther is product differentiation.

In perfect competition, elasticity of demand is perfect,  but in monopolistic competition, there is high elasticity.

In perfect competition, demand curve is horizontal, but in monopolistic competition, it is downward sloping and more flat.

As for both of these types of markets, there is freedom of entry .

Answer to 9th question:

There is a minor difference in the conditions of price and output determination (Equilibrium)in the short-run and long-run under monopolistic competition. Accordingly,the equilibrium under monopolistic competition can be discussed under two heads : short run equilibrium and long run equilibrium.

Long run equilibrium under monopolistic competition is called group equilibrium .Firms in the industry have complete freedom to enter and exit the monopolistic market .In the shot run if any firm earns profits ,new firms will enter the industry .As a result out put expands and prices in the market fall till profit becomes zero .Now there is no attraction for the new firms to enter . On the contrary , if any firm incurs loss in the short run , that firm will stop production and exit the market . Now there will be a fall in out put leading to higher price. Entry or exit would stop once profit becomes zero. This would act as the long run equilibrium . Under monopolistic competition all firms earn normal profits in the long run.