Question

GoGo Pizza is producing at the profit-maximizing level of output in a monopolistically competitive market. i Show GoGo Pizza's profit-maximizing level of output, selling price, and a positive profit in a diagram. Briefly explain. (8 marks) 1. Does GoGo Pizza have an incentive to produce at the level of output that maximizes the social welfare? Explain with the diagram in part (i). (5 marks)

Answer 1

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bw ube and Naranja In monopolistic competition, price exceeds Prostorns Marginal cost, and there is a deadweight loss - Shown by the shaded area. However, in case of a monopolistic (competition, there is free entry of firms, which drivs prosit of Go-Go pizza down to Zno level. Now, the the monopoly opown is small in care of monopolistic market and as Consmers can choose among large variation of products, because of it his 'product divusity "assuption Go-Go Pizza will have an incentive to produce at an output level of mininews awerage cost a That is ut output levil Qe Hunce at that ill ! output levce, Social Welfare will be manimised. as dead weight loss will be negligble [shown by in A ABC neglig bryshon te in barpal tube lolosing Joop te زدم دم دم در د ار - ) زند راز (( را نے اد: در دو : راد ، ادرار از (( از ارزد. او در زر در Dars uit أ/- ، او را | باد اور ر رفرد ربار baba A sharp apith baba Scanned with CamScanner

Question 4 s Dei SiON - rusy sion 4 down sug d ision) sintofonom na tripetuto Honda writ t en van - f n man was tign-grade to you?) por Love (524) o Nwgh Is t w,5) kdorf sercedes blow-grade arrom High-grade Low-grade Low-grad Benz's Decision Ce lege grade ercedes Nit t iovib Hubergo timeBenzy who Denbora te strategy torbuar Diul afis a Dommers dorsus Por so loves Louus as to High I to intery of Honour he will ů Dominant strategy for) in mod Benz reha a oltres Honda et Mercedes Benz rehoose Low-grade, Honda will att ii) Dominant strategy of Honda is Low-grade ... in select Low grade! et mercedes Benz selects High-grade's Honda, will Select Low-grade- et Honda selects Low-grade, Mercedes Benz will al sclect High-grade. et Honda selects High-grade, Mercedes Benz will Select High-grade i Hunce Nash equilibrium of this gure will be (High-grade, Low-grade) = (86) Scanned with CamScanner