Question

Explain through an equation the relationship between ”markups” and the amount of firms competing in an industry. (You can assume equally sized firms.) How can this relationship be used to estimate the relevance of the monopoly problem for the entire economy if you interpret a firm’s average markup in a year to be equal to return the firm’s stockholders make over that year?

Answer 1

An&ver; Relationship between markups" and the amount of firms competing in an industry through an equation: - A mark-up is an amount over and above the total Cost (Te) of production of a product or service. · charging a price above the marginal cost (mch allows films to set a markup and so the learner's index is positive bot less than orie. (markup = (e-mc) Imc using this relationship to estimate the relarence of the monopoly for the entire economy → les by interpreting a frms average markupina the firms stockholders year to be equal to return make over the year

• Markup with low level = monopolistic competition • Markup with zero = perfect competition. • mark up is also used to indicate the concentration in the economy hence for high mark up there is no high concentration of market Power with few firms catering to market alone - -