代写中级微观经济学-Econ E1010代写-Econ代写

Econ E1010 Practice Problems for TA Session on December 13 and the Final Exam

代写中级微观经济学 It will help if you start solving the problem by drawing the diagram first. Plot the demand function, MR function

1.Consider a market with an aggregate/market demand function: P = 1600 – 2Q, where Q represents the total market quantity and P denotes the market price.

Suppose the market is supplied by a single seller, i.e., a monopolist. The monopoly firm has a constant marginal cost of production equal to $160. As we know, when the marginal cost is constant for every unit produced, it is equal to the firm’s average cost. Therefore, MC = AC = $160.

Hint: It will help if you start solving the problem by drawing the diagram first. Plot the demand function, MR function, and the MC information (label all intercepts clearly).

(a)Calculate the profit maximizing level of quantity, price, and profits for this monopolist. 代写中级微观经济学

(b)Can you calculate the total industry output that would be supplied if this market was served by a perfectly competitive industry (with many small firms without any market power, i.e., price-takers) instead of a monopolyfirm?

(c)What is the difference in the market quantity supplied by the monopoly firm vis-à-vis a perfectly competitiveindustry?

(d)What is the difference in the market price charged by the profit-maximizing monopoly firm vis-à-vis a perfectly competitiveindustry?

(e)Can you calculate the total market consumer surplus that would be produced in the monopolyworld?

Hint: Graphically, the market consumer surplus in the monopoly market (for the equilibrium quantity supplied) is the area below the market demand curve and above the monopoly price. Refer to the content at the back of the monopoly lecture notes for this material. 代写中级微观经济学

(f)Can you calculate the total market producer surplus that would be generated in the monopolyworld?

Hint: Graphically, the total producer surplus in the monopoly world is the area between the monopoly price and the firms’ MC/AC up to the monopoly quantity.

Can you calculate the deadweight loss/efficiency loss generated in society if the market is served by amonopoly firm?

Hint: The deadweight loss is the measure of the “social cost” of the monopoly. To find the area on the graph that indicates the deadweight loss, we have to compare the “efficient” level of industry output with the output supplied in the monopoly world. The perfectly competitive industry output is the efficient level of output (this result comes from the welfare theorems of economics). 代写中级微观经济学

Now suppose, instead of either a monopoly firm or a perfectly competitive industry, this industry is supplied by two symmetric firms, i.e., two firms with the same cost of production. So, it is now a duopoly market. As before, we assume the firms have a constant marginal cost of producing each unit of output.

So,𝑷 = 𝟏𝟔𝟎𝟎 − 𝟐𝑸𝟏 − 𝟐𝑸𝟐,where the total industry output (Q) is now the sum of the outputs supplied by firm 1 and firm, i.e.,𝑄1 and 𝑄2.

Now,𝑴𝑪𝟏 = 𝑨𝑪𝟏 = 𝟏𝟔𝟎 = 𝑴𝑪𝟐 = 𝑨𝑪

(h)Can you write the profit functions for eachfirm?

Hint: The profit function of a firm in the duopoly market will show that a firm’s profit earnings depend not only on the output it produces (𝑄1) but also on the rival firm’s output (𝑄2). 代写中级微观经济学

(i)Now suppose the two firms engage in Cournot quantity competition, which means they choose their output levels, given their rival’s choice. Each firm aims to choose the best response to its rival’s choice.

Can you derive the reaction functions for each firm?

The marginal profit functions you will need to derive the reaction functions are given below:

(j)What will be the Cournot equilibrium quantities, price, and firm profits in thismarket? 代写中级微观经济学

Now suppose we are still in the duopoly (two firms) world but firm 1 gets to choose its output level before firm 2. This means the firms engage in a sequential output choice competition as demonstrated first by the Stackelberg Leader- Follower Market competition model.

(k)What will be the Stackelberg equilibrium quantities, price, and firmprofits?

Hint: To solve a sequential choice game, we have to use the backward induction method.

(l)What lessons have you learned by solving and comparing the monopoly, Cournot, and Stackelbergmarket equilibrium outcomes? Why does knowledge of different market structures matter?

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