1. Models of Competition Review

2. Please list the letters that reflect the following using letters to define areas: 3. Total welfare (producer + consumer) in a competitive market in the short run. 4. Producer surplus in the long-run competitive market. 5. Consumer surplus in a single price monopoly. 6. Producer surplus in a single price monopoly. 7. Dead-weight loss due to monopoly power I,F,L 1. Long-run competitive supply 2. Monopolist marginal revenue A K S None! I,H,K H,K,R,F K,R,L 9. Which would consumers prefer – a tax equal to (H-G) or a single-price monopoly? Consumers are indifferent in the long-run; better with tax in the short run. B J K Q I H F DC R K L G M A E S Z

3. The market consists of the following firms: 5 firms with P = 20 + 5Q 1 firm with P = 100 + 10Q 1 firm with P = 600 + Q What is the market supply? P = 300 + (10/21)Q If the demand is P = 2400 – 11/21Q What is the perfectly competitive equilibrium price and quantity? Q = 2100, P = $1,300 How much will each firm make? 5 firms with Q = 256 1 firm with Q = 120 1 firm with Q = 700 Which firm(s) can cut their price to what $ to put the others out of business? The five firms with min AVC = 20 can cut to <$100 What would be the new equilibrium price and quantity for the remaining firms? Q = 1,562 P = $1,582 (both rounded)

4. Demand: P = 200 -4Q TC = 10 +2Q 2 MC = 4Q What is the optimal price and quantity in a perfectly competitive market? Q = 25, P = $100 What is the optimal price and quantity in a monopoly market? (round to nearest whole Q) Q = 17, P = $132 What would be the short-run price and quantity in a perfectly competitive market if the government imposes a $10 per item tax? (round to the nearest whole Q) Q = 24, P = $104 In words what would be the long-run price in a perfectly competitive market if the government imposes a $10 per item tax? P = LAC+10 = long run average cost + $10 tax What is the producer surplus in a perfectly competitive market? $1,250 What will happen to price and quantity in the long run (just direction, not actual numbers.) New competitors will enter increasing Q and decreasing P. What is the profit for the monopolist? $1,656 What is the dead-weight loss associated with the monopolist’s market power? ½ (64 x 8) = $256

5. Demand: P = 200 -4Q TC = 10 +2Q 2 MC = 4Q If there are two (2) firms in the market with identical cost structures (Cournot Oligopoly): How would you express the marginal revenue for firm #1? What is Firm #1’s response function? (How much would they make depending on how much Firm #2 makes?) How much will each firm make? What will be the equilibrium price and quantity in the market?

6. What is the producer surplus? What is the consumer surplus? Draw a graph on the board and explain in words what would happen in this market in the long-run What would be the monopolist’s marginal revenue function? For a perfectly competitive market: Industry supply & demand What would be the monopolist’s optimal price and quantity at a marginal cost of $50? What would be the monopolist’s producer surplus at the optimal P & Q? What would be the consumers’ surplus at the optimal P & Q? For a single-price monopoly: ½ x 25 x 500 = 5,250 ½ x 50 x 500 = 12,750 P = 100 – Q/10; MR = 100 - Q/5 Q = 250 P = 75 25 x 250 = 6,250 ½ x 25 x 250 = 3,125

7. What is the short-run profit maximizing condition? What is the long-run profit maximizing condition? What is the equilibrium price equal to in the long run? Can a firm have an economic loss but stay in business in the short run? Can a firm have an economic loss but stay in business in the long run? Is producer surplus the same as economic profit? What is the shut-down condition? Please answer the following with either a graph or math notation MR = MC MR = MC = AVC P = MR = MC = AVC Yes No P < AVC

8. A B Which panel shows perfect competition and which monopoly competition? What is one difference and one similarity between perfect and monopoly competition? Are these short or long term graphs? How do you know?

9. Good Luck!!