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You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue. Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue Q P ATC MC MR 100 50 30 20 25 Is the firm maximizing profit? Yes No

  1. What is your name?
  2. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

Q P ATC MC MR
100 50 30 20 25
    1. Is the firm maximizing profit?
      1. Yes
      2. No
    2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.

      What would increase profit?

      1. An increase in output
      2. A decrease in output
    3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.

      Is the firm in a long-run equilibrium?

      1. Yes
      2. No
    4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.

      What would happen in the long run?

      1. Entry would occur
      2. Exit would occur
  1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

Q P ATC MC MR
100 50 30 20 20
    1. Is the firm maximizing profit?
      1. Yes
      2. No
    2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.

      What would increase profit?

      1. An increase in output
      2. A decrease in output
    3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.

      Is the firm in a long-run equilibrium?

      1. Yes
      2. No
    4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.

      What would happen in the long run?

      1. Entry would occur
      2. Exit would occur
  1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

Q P ATC MC MR
100 50 30 30 20
    1. Is the firm maximizing profit?
      1. Yes
      2. No
    2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.

      What would increase profit?

      1. An increase in output
      2. A decrease in output
    3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.

      Is the firm in a long-run equilibrium?

      1. Yes
      2. No
    4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.

      What would happen in the long run?

      1. Entry would occur
      2. Exit would occur
  1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

Q P ATC MC MR
100 50 50 50 25
    1. Is the firm maximizing profit?
      1. Yes
      2. No
    2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.

      What would increase profit?

      1. An increase in output
      2. A decrease in output
    3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.

      Is the firm in a long-run equilibrium?

      1. Yes
      2. No
    4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.

      What would happen in the long run?

      1. Entry would occur
      2. Exit would occur
  1. You are given the following information about the quantity that a monopolistic competitor is producing and selling, its price, average total cost, marginal cost, and marginal revenue.

Q= quantity; P = price; ATC = average total cost, MC = marginal costs, MR = marginal revenue

Q P ATC MC MR
100 50 50 25 25
    1. Is the firm maximizing profit?
      1. Yes
      2. No
    2. Answer this question if your answer to a is “No”. Skip it if your answer is “Yes”.

      What would increase profit?

      1. An increase in output
      2. A decrease in output
    3. Answer this question if your answer to a is “Yes”. Skip it if your answer is “No”.

      Is the firm in a long-run equilibrium?

      1. Yes
      2. No
    4. Answer this question if your answer to c is “No”. Skip it if your answer is “Yes”.

      What would happen in the long run?

      1. Entry would occur
      2. Exit would occur
  1. A monopolistically competitive restaurant  in long-run equilibrium is maximizing profit by producing and selling 50 meals a day. It minimizes average total cost by producing and selling 60 meals per day.  The following table contains information about average total cost and marginal cost at these two quantities.

 

Q ATC MC
40 25 10
60 18

 

    1. The graph below contains a sketch of the average total cost curve. Add to this graph a sketch of the demand, marginal revenue, and marginal cost curves facing the firm.

 

    1. What is the socially efficient quantity? The socially efficient quantity is
      1. less than 40
      2. 40
      3. between 40 and 60
      4. 60
      5. greater than 60
    2. Shade the area that represents the deadweight loss.
    3. Suppose that the industry changed from monopolistically competitive to perfectly competitive. In the long run price would be
      1. greater than 25
      2. 25
      3. between 18 and 25
      4. 18
      5. less than 18   Use the information below to answer the remaining questions. 
        Profit earned by HH Gregg
        Price charged by Best Buy
        10 11 12 13 14 15 16 17 18 19 20
        Price charged by HH Gregg 10 300 300 400 450 700 650 800 700 700 500 300
        11 350 400 450 500 800 700 850 800 800 600 400
        12 325 425 500 550 900 800 900 900 900 700 500
        13 300 400 525 600 800 850 950 1000 1000 800 600
        14 275 375 500 575 700 900 1000 1100 1100 900 700
        15 250 350 475 550 675 800 950 1200 1200 1000 800
        16 225 325 450 525 650 775 900 1100 1300 1100 900
        17 200 300 425 500 625 750 875 1000 1200 1200 1000
        18 175 275 400 475 600 725 850 975 1100 1100 1100
        19 150 250 375 450 575 700 825 950 1075 1000 1000
        20 125 225 350 425 550 675 800 925 1050 975 900
        Profit earned by Best Buy
        Price charged by HH Gregg
        10 11 12 13 14 15 16 17 18 19 20
        Price charged by Best Buy 10 300 300 400 450 700 650 800 700 700 500 300
        11 350 400 450 500 800 700 850 800 800 600 400
        12 325 425 500 550 900 800 900 900 900 700 500
        13 300 400 525 600 800 850 950 1000 1000 800 600
        14 275 375 500 575 700 900 1000 1100 1100 900 700
        15 250 350 475 550 675 800 950 1200 1200 1000 800
        16 225 325 450 525 650 775 900 1100 1300 1100 900
        17 200 300 425 500 625 750 875 1000 1200 1200 1000
        18 175 275 400 475 600 725 850 975 1100 1100 1100
        19 150 250 375 450 575 700 825 950 1075 1000 1000
        20 125 225 350 425 550 675 800 925 1050 975 900

                   

        Profit earned by each firm = ______

      6. 8.     How much profit does each firm earn in a competitive market?
      7. Price = _______
      8. 7.     If the marginal cost of the large screen TV is 400, what price would the firms charge in a competitive market?
      9. Profit earned by each firm = ______
      10. 6.     How much profit does each firm earn in the Nash equilibrium?
      11. Price = _____
      12. 5.     What price do the firms charge in the Nash equilibrium? (Since the profit tables are symmetric, each firm will charge the same price in the Nash equilibrium.)
      13. Price = _______
      14. 4.     What price maximizes profit for HH Gregg when Best Buy’s price = a?
      15. Profit earned by each firm = ______
      16. 3.     How much profit does each firm earn when they charge the same price and maximize the sum of their profits?
      17. 2.     What price maximizes the sum of their profits? Price = a = _____
      18. HH Gregg and Best Buy are the only two firms that sell a large screen TV in a town. Communication to coordinate pricing is illegal but the two firms have figured out a way to communicate with each other without detection by law enforcement officers. Suppose that they communicate and both agree to set the same price. L22-GA, Profits contain two profit tables. The first shows the profits earned by HH Gregg for every possible combination of prices. The second table shows the profits earned by Best Buy. The tables are symmetric.
      19. Part II

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