Chapter 9: Competitive Markets for Goods and Services

Chapter 9: Competitive Markets for Goods and Services

Part 1

Consider the following goods and services. Which are the most likely to be produced in a perfectly competitive industry? Which are not? Explain why you made the choices you did, relating your answer to the assumptions of the model of perfect competition. Please address all of the examples below in your discussion.1. Coca-Cola and Pepsi2. Potatoes3. Private physicians in your local community4. Government bonds and corporate stocks5. Taxicabs in Lima, Peru—a city that does not restrict entry or the prices drivers can charge6. Oats

Chapter 10: Monopoly

Part 2

A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost. You may wish to arrive at the answers mathematically, or by using a graph (the graph is not required to be presented), either way, please provide a brief description of how you arrived at your results.

a) How much will the firm produce?b) How much will it charge?c) Can you determine its profit per day? (Hint: you can; state how much it is.)d) Suppose a tax of $1,000 per day is imposed on the firm. How will this affect its price?e) How would the $1,000 per day tax its output per day?f) How would the $1,000 per day tax affect its profit per day?g) Now suppose a tax of $100 per unit is imposed. How will this affect the firm’s price?h) How would a $100 per unit tax affect the firm’s profit maximizing output per day?i) How would the $100 per unit tax affect the firms profit per day?

Part 3

Respond to the following question in at least three well composed paragraphs: What are the necessary conditions for a monopoly position in the market to be established?

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