How does pure competition differ from other basic market models

How does pure competition differ from other basic market models

2. In the table below are cost and demand data for a pure monopolist.
Quantity demanded Price Marginal revenue Average cost Marginal cost
0 $105.00
1 96.00 $ 96.00 $144.00 $144.00
2 87.00 78.00 90.00 36.00
3 78.00 60.00 70.34 30.00
4 69.00 42.00 63.00 42.00
5 60.00 24.00 60.00 48.00
6 51.00 6.00 58.50 51.00
7 42.00 −12.00 57.86 54.00
8 33.00 −30.00 57.50 55.50
9 24.00 −48.00 57.33 56.00
(a) What is the level of price, output, and amount of profit for an unregulated monopolist?

(b) Using the data in the table, what are the price, output, and profit for a regulated monopolist that sets price equal to marginal cost compared with an unregulated monopolist?

(c) Using the data in the table, what are the price, output, and profit for a regulated monopolist that charges a “fair-return” price compared with an unregulated monopolist?

(d) Analyze the effect of regulation on the allocation of resources. Which situation is most efficient? Which situation is most likely to be chosen by government? Why?

3. Assume that the short-run cost and demand data given in the table below confront a monopolistic competitor selling a given product and engaged in a given amount of product promotion. Compute the marginal cost and marginal revenue of each unit of output and enter these figures in the table.

Output Total cost Marginal cost Quantity demanded
Price Marginal revenue
0 $ 75 0 $180
1 120 $_____ 1 165 $_____
2 135 _____ 2 150 _____
3 165 _____ 3 135 _____
4 210 _____ 4 120 _____
5 270 _____ 5 105 _____
6 345 _____ 6 90 _____
7 435 _____ 7 75 _____
8 540 _____ 8 60 _____
9 660 _____ 9 45 _____
10 795 _____ 10 30 _____

(a) At what output level and at what price will the firm produce in the short run? What will be the total profit?
(b) What will happen to demand, price, and profit in the long run?
4. Use the following total-product schedule for a resource to answer the next three questions. Assume that the quantities of other resources the firm employs remain constant.
Units of resource Total
product
1 12
2 21
3 27
4 32
5 36

(a) If the firm’s product sells for a constant $2 per unit, what is the marginal revenue product of the third unit of the resource?

(b) If the firm’s product sells for a constant $2 per unit and the price of this resource is $8, how many units of the resource will the firm employ?

(c) If the firm can sell 12 units of output at a price of $1.00 per unit and 21 units of output at a price of $0.80 per unit, what is the marginal revenue product of the second unit of the resource?

5. Why is the economic analysis of oligopoly so difficult? Discuss the three oligopoly models. What two generalizations can be made about the pricing behavior of oligopolists?
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