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AP ECONOMICS Name: ________________________ Homework Unit #3: Chapter 15, 16 & 17 Instructions: This homework is mandatory for all students DUE: Tuesday March 25th 1) Fill in the Chart Below: PERFECT COMPETITION Maximize Profit when: MC = _?_ MONOPOLISTIC COMPETITION MC = MC = OLIGOPOLY MC = MONOPOLY MC= Price relative to MC (equal, greater or less than) Economic Profit Short Run (yes, no) Economic Profit Long Run (yes, no) Shape of Demand Curve (Horizontal, downward sloping) Price relative to Marginal Revenue (Equal, greater or less than) Produce at minimum of ATC Long run—Yes or No Deadweight loss (long run) (Yes or No) Costs and Revenue Average total cost Demand Marginal cost Marginal revenue 0 Q Q Quantity 2) Using the graph above draw the market equilibrium for a profit maximizing Monopoly. a. Shade in the profit area b. Explain why a Monopoly can earn a profit in the long run 3) At equilibrium: MC = $20, MR = $20, AR = $25, Qty = 200 & ATC = $12, calculate the monopolies profit. a. Show calculations below: Price Monopoly price Marginal cost Marginal revenue 0 Quantity sold Demand Quantity 4) Assume MC is constant in the graph above. Please label the 3 areas in the above graph 5) Explain why a monopoly has a Marginal Revenue curve beneath the Demand Curve (Average Revenue Curve) but perfect competition does not. a. Hint: it has to do with a downward sloping demand curve versus a horizontal demand curve 6) Explain why a monopoly will produce a decline in Total Welfare for society versus a perfectly competitive market. a. How do you measure this loss? 7) Explain the effect of a monopolist who uses perfect price discrimination on each of the following: a. Consumer Surplus b. Deadweight Loss c. Monopoly Profit d. Total Welfare 8) Specifically, who benefits from perfect price discrimination and who is hurt? ----------------- ● D MR 9) Please fill in the circles above with the appropriate elasticity. a. Notice that when MR = 0 _______________________________ 10) A monopolist will always operate in the ___________ portion of a demand curve. Liz Bob HIGH LOW HIGH 400, 300 LOW -800, 500 600, -800 -500, -500 11) What is the dominant strategy for Bob? (Explain why!) a. What do economists mean by an enforceable equilibrium 12) Determine the Nash Equilibrium? (Explain why!) 13) If Oligopolies succeed at perfectly cooperating (collusion) how does the equilibrium profit, price & quantity of their industry differ from a monopolies? a. Explain why do Oligopolies usually fail to achieve a Monopoly outcome? Monopolistic Competition Perfect Competition Price Price MC MC ATC ATC P P = MC MR 0 Quantity produced P = MR (demand curve) Demand Quantity Efficient scale 0 Quantity produced = Efficient scale Quantity 14) Are the above graphs SHORT RUN or LONG RUN graphs for their respective industry? 15) Explain what conditions led to your answer for #14 Monopolistic Competition YOUR GRAPH HERE (long run) Price MC ATC Demand MR 0 Quantity 16) Draw the short run equilibrium for the Monopolistic Competition firm in the above graph a. Label P1, Q1 and E1 17) To the right draw the long run equilibrium for a Monopolistic Competitive firm. 18) Explain the series of steps which leads markets from one equilibrium to the other. 19) Explain what excess capacity is: 20) On the graph below label the equilibrium for a Monopoly versus equilibrium for Perfect Competition a. Monopoly: Label PM, QM EM Perfect Competition: Label PPC QPC EPC b. Label Deadweight Loss from Monopoly Output Costs and Revenue Average total cost Demand Marginal cost Marginal revenue 0 Q Q Quantity 21) What does deadweight loss represent to society? a. Hint: where does it come from? b. Why does it occur? 22) Explain why entry and exit are critical for any market to truly self-regulate