Principles of Economics

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ECN

2

0

5

Microeconomics

Assignment

3

Name _______________________________________

1. The figure below represents the market for corn, which is perfectly competitive. Farmer Roy is a producer of corn in this market. Use the information in the graph to describe the

demand

curve for Farmer Roy’s corn. (Min of

1

00 words to be considered for 15 points) Note: The dotted lines are a little off—the intersection is at

8

and 5 respectively.

P

rice

($/bushel)

supply

8

demand

5

Q

uantity

of corn (bushels)

2. Explain four different types of barriers to entry in monopoly. (10 points)

.

3. ABC, Incorporated has a local monopoly in the sale of automatic paper towel dispensers. The table below shows the demand for these towel dispensers at various prices. The total cost of production of the various levels of output is also shown. (15 points)

· Calculate total revenue and profit for the firm.

· What level of output maximizes profit?

· What price should the firm charge?

Quantity

Price

Total Revenue

Total

Cost

Profit

0

$100

$80

1

85

100

2

7

0

125

3

55

155

4

40

1

9

0

5

25

2

30

4. Below are the demand, marginal cost, and marginal revenue curves for Lita’s, Inc. Lita has decided that her firm should produce 20 units per day. Is this the profit-maximizing level of output? If this is not the profit – max level of output, explain what is and why. (15 points)

P

MC

D

Quantity

40

30
20

MR

5. XYZ Corporation, a monopoly, faces the demand, marginal revenue, and marginal cost curves shown below. The government requires the firm to sell its product at a price no higher than

P*

.

Describe the impact of this regulation in terms of both efficiency and equity. (15 points)

P

MC

P*

D

Q

MR

6

. Answer each of the following: (10 points)

a. Describe three features of monopolistic competition that differentiate it from monopoly.

b. Compare perfect competition and monopolistic competition.

i. In what ways are they similar?

ii. In what ways are they different?

7. What happens in the long run if firms in a monopolistically competitive industry are earning positive economic profits? Discuss demand, profits, etc. (10 points)

8. Referring to the table below, identify the unit of labor where diminishing marginal product has set in. Explain your answer. (10 points)

0

0

5

2

3

4

5

8

35

33

Labor	Output
1
11
18
24
29
6		33
7		35
9