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

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)

Answers to Workshop 6

Perfect Competition and Monopoly

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)

5. A monopolist is faced with the following cost and revenue curves:

(a)

.............. 200 units (where

(b) What is the maximum-profit price?

￡60 (given by AR

(c) What is the total revenue at this

and output?

....................... ￡12000 (i.e. ￡60 ?

(d)

output?

................ ￡6000 (i.e. ￡30 (AC) ?

(e)

and output?

........................... ￡6000 (i.e. TR –

(f) If the monopolist were ordered

produce 300 units, what would be

market price?

.................... ￡50 (given by AR

(g)

......................... ￡4500 (i.e. ￡15 ?

(h) If the monopolist were faced with

same demand, but average costs

constant at ￡60 per unit, what output would maximise profit?

................................................... 100 units (where AC = MC = MR = ￡60)

(i) What would be the price now? .................................. ￡70 (given by AR curve at 100 units)

(j) How much profit would now be made? .................................................... ￡10 ? 100 = ￡1000

(k) Assume now that the monopolist decides not to maximise profits, but instead sets a price of ￡40. How much will now be sold?

........................................ 400 units (given by AR curve)

(l) What is the marginal revenue at this output? 0

(m) What does the answer to (l) indicate about total revenue at a price of ￡40? ........ M aximised

(n) What is the price elasticity of demand at a price of ￡40? (You do not need to do a calculation to work this out: think about the relationship between MR and TR.)

–1 (this is the case where TR is maximised.

6. You are given the following data about two firms:

FIRM A

Quantity 0 1 2 3 4 5 6 Total revenue (￡) 0 10 20 30 40 50 60 Average revenue (￡) –10 10 10 10 10 10 Marginal revenue (￡) 10 10 10 10 10 10

Total cost (￡) 30 42 50 60 76 10

0 14 0

Marginal cost (￡) 12 8 10 16 24 40

Average cost (￡) ∞42 25 20 19 20 23 FIRM B

Quantity 0 1 2 3 4 5 6 Total cost (￡) 100 134 154 177 216 266 366 Average cost (￡) ∞134 77 59 54 53.

2

61

Marginal cost (￡) 34 20 23 39 50 100

Price (￡) 140 130 120 110 100 90 80 Marginal revenue (￡) 130 110 90 70 50 30

Total revenue (￡) 0 130 240 330 400 450 480

(a)Complete the two tables above.

(b)Are these firms operating in the short or the long run?

Firm A: short run (it has fixed costs of ￡30 and thus some of its factors are fixed in supply) Firm B: short run (it has fixed costs of ￡100 and thus some of its factors are fixed in supply)

(c) Are these firms operating under perfect or imperfect competition?

Firm A: perfect (horizontal demand (AR) curve)

Firm B: imperfect (downward-sloping demand (AR = price) curve)

(d) What level of output will these firms produce in the short run?

Firm A: 2 or 3 units (where MC = MR)

Firm B: 4 or 5 units (where MC = MR) (e)How would you describe their profit positions?

Firm A makes a loss of ￡30 (￡50 – ￡20 or ￡60 – ￡30). This is the best it can do. Any other

output will give a greater loss.

Firm B makes a profit of ￡184 (￡400 – ￡216 or ￡450 – ￡266). This is the maximum profit it can make given the figures in the table.

7.Even if a firm is currently a monopoly, it may be forced to behave as if it were in a competitive

market if there is potential competition: i.e. if the market is contestable.

(a) The threat of this competition will be greater the higher / the lower [delete as applicable]

the entry costs to the industry and

(b) the higher / the lower [delete as applicable] the exit costs from the industry.

8. A perfectly contestable market is defined as one where entry and exit costs are zero.

9.Classify each of the following markets as highly contestable, moderately contestable, slightly

contestable or non-contestable. If it depends on the circumstances, explain in what way.

(a) satellite broadcasting ......................................................... h ighly / moderately / slightly / non

(b) hospital cleaning services ............................................... h ighly / moderately / slightly / non

(Highly, if the cleaning is put out to periodic tender. Non, if the hospital employs its own

cleaners or if an outside firm has a permanent contract).

(c) banking on a university/college campus ......................... highly / moderately / slightly / non

(Moderately if the banks are invited to tender periodically for a site licence. Non if a single bank is given a permanent site licence.)

(d) piped gas supply .............................................................. highly / moderately /slightly / non

(Non, if the gas pipe grid is owned by a single company and if other companies are not permitted to use it or to establish a rival grid. Slightly (in densely populated areas), if companies are permitted to construct a rival grid. At a retail level, entry to the market may be moderately or even highly contestable if rival companies are permitted to use the same gas pipe grid, as is the case in the UK.)

(e) parcels delivery ................................................................ highly / moderately / slightly / non

(f) siting for the Olympic games ........................................... h ighly / moderately / slightly / non

(Moderately (at the bidding stage). The failure costs may be high if a city invests a lot on facilities – as several unsuccessful cities can testify – but, of course, the facilities can still be enjoyed by the inhabitants).

(g) bus service to the area where you live ............................. highly / moderately / slightly / non

(unless prohibited by law or unless an existing service is heavily subsidised)