Project #1340 - economic

 

 

 

 

1. Suppose a monopolistically competitive firm is facing the following demand and cost information.

 

Price

 

Quantity

Demanded

 

Total

Cost

 

$30

 

 

10

 

 

200

 

 

29

 

 

11

 

 

208

 

 

28

 

 

12

 

 

217

 

 

27

 

 

13

 

 

227

 

 

26

 

 

14

 

 

240

 

 

25

 

 

15

 

 

255

 

 

24

 

 

16

 

 

272

 

 

 

 

 

 

a. If the firm is a profit maximizer, how many units of output should the firm produce? How did you find this number? Explain.

 

b. What price should the firm charge? Why? Explain.

 

c. What is the amount of economic profit (or economic loss) earned (or incurred) by the firm?

 

d. What do you predict will happen in the long-run? Why?

 

2.

Your friend Mike owns a coffee shop in a town with many competing coffee shops in a monopolistically competitive industry. One day Mike tells you (a trained economist) that he is earning an economic profit and is currently setting his price equal to his marginal cost. Is Mike producing the profit-maximizing amount of coffee? If not, what should he do? Explain. What will be effect of that proposed course of action?

 

3.

Your friend Alberta is the owner of a boutique clothing store in a monopolistically competitive clothing market, so Alberta’s store has some degree of market power. Assume further that the market is in long-run equilibrium. Over coffee, Alberta tells you that she is considering raising the price of her clothing to increase her profits. What is your advice? Explain your answer.

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Due By (Pacific Time) 11/29/2012 06:00 pm
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