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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