微观经济学---入门压轴题 全英文 john Sloman and Alison Wride --6

Answers to Workshop 6

Perfect Competition

and Monopoly

1. It is usual to divide markets into four categories. In ascending order of competitiveness these are

(fill in the missing three):

1. Monopoly

2. Oligopoly

3. Monopolistic competition

4. Perfect competition

2. To which of the above four categories do the following apply to the member firms? (There can

be more than one market category in each case.)

(a)Firms face a downward sloping demand curve.

Monopoly, oligopoly, monopolistic competition

(b) New firms can freely enter the industry. ..... P erfect competition, monopolistic competition

(c) Firms produce a homogeneous product. .................. Perfect competition, some oligopolies

(d) Firms are price takers. ........................................................................... Perfect competition

(e) Firms face an elastic demand (but less than infinity) at the profit-maximising output.

Monopoly, oligopoly, monopolistic competition

(f) Firms will produce where MR = MC if they wish to maximise profits. ............................ A ll

(g) There is perfect knowledge on the part of consumers of price and product quality.

Perfect competition 3.In which of the four categories would you place each of the following? (It is possible in some

cases that part of the industry could be in one category and part in another: if so name both.)

(a) A village post office ........................................... Monopoly for certain people and products

(b) Restaurants in large town ..............................................................Monopolistic competition

(c) Banks .......................................................................................................................Oligopoly

(d) Hi-fi manufacturers .................................................................................................Oligopoly

(e) Producers of barley ......................................................... P erfect competition (or close to it)

(f) Water supply .......................................................................................................... M onopoly

(g) Local buses ........................................................................................ Monopoly or oligopoly

(h) The market for foreign currency ..................................... P erfect competition (or close to it)

4.The following diagram shows the cost curves of a firm under perfect competition.

of £8 per unit? ....................70 units

(b) What will be its average cost of production at this output? ..................................................... £6

(c) How much (supernormal) profit will it make? .................................................... £2 ⨯ 70 = £140

(d) How much will the firm produce in order to maximise profits at a price

of £5 per unit? ............................50 units

(e) How much (supernormal) profit will it make? ......................................................................... £0

(f) How much will the firm produce in order to maximise profits at a price

of £4 per unit? ............................40 units

(g) What will be its profit position now? ................................................ A loss of £1.50 ⨯ 40 = £60

(h) Below what price would the firm shut down in the short run? ............. £3.50 (where P = AVC)

(i) Below what price would the firm shut down in the long run? ...................... £5 (where P = AC)