Answer to Question #215871 in Microeconomics for camillus

Question

1. explain in details and using diagrams where appropriate the three main salient characteristics of each of the following market structures

a. perfect market

b. monopolistic competition market

c. monopolistic market

d. oligopolistic market

1. draw a diagram to show a firm in a monopolistic competition market making a short run loss but remaining in production. in your diagram, include the labels for the following: AR for average revenue; MR for marginal revenue; AC for average cost ; AVC for average variable cost and MC for marginal cost
2. for price discriminating monopolist, the inverse demand functions for two markets are given as follows

p1= 16-Q1

p2=9-Q2

where:-

p1 is the price in sub-market 1

p2 is the price in sub-market 2

Q1 is quantity demanded in sub-market 1

Q2 is quantity demanded in sub-market 2

Using the above information, calculate the profit maximizing outputs and prices in each of the sub-market when the industry's marginal cost equals 10 units

Answer 1

1)a)

perfect maeket has large number of buyers and sellers, the market deals with homogenous goods and Uniform Price

b)Monopolistic competition market the have large number of buyers and sellers,price differenciation and free entry and exit in the market.

c) In monopolistic market the sellers are price maker, there is a high barriers to entry, and practices price discrimination.

d)oligopolistic market  is dominated by a small number of large firms, the firms sells either identical or differentiated products, and the industry has significant barriers to entry.

2)

3)

Assuming demand as-$P=X−Y(Q)$

Total Revenue$(TR) = P × Q= XQ−YQ_2$

Marginal Revenue $(MR) =\frac{ dPQ} {dQ}$

Marginal Revenue $(MR) = X−2YQ$

To Maximize Profit:

Marginal Cost  = (Z)

Marginal Revenue(MR) = Marginal Cost (MC)

$X−2YQ= Z\\ = X+Z = 2YQ\\ Q =\frac{ X+Z} {2Y}$

Thus, merging equation 1 and 2:

$P = X−YQ\\ P = X−Y\frac{ (X+Z)} {2Y}\\ P = \frac{X−Z} {2}$

Now Inserting the Values:

• For P1 and Q1

$P1=\frac{ 16+10}{2}\\P1 =\frac{ 26}{2} = 13 \\ Q1 = 16−13 = 3$

• For P2 and Q2

$P2 = \frac{9+10}{2}\\P2 = \frac{19}{2}= 9.5 \\ Q2 = 9−9.5= −0.5$