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PART A (Worth one third of the marks, budget one third of your time)




PART A (Worth one third of the marks, budget one third of your time);Choose any TWO out of the following THREE.;1. All pricetaking rms in a competitive industry have access to the technology C (yi) =;2;8+12yi +2yi. Derive a typical rms shortrun supply curve and show it on a graph. Derive;the longrun supply curve for this industry based on free entry and pricetaking behaviour;and show this curve on a graph. What would determine the number of rms in the industry?;2. In a Stackelberg industry with identical rms we know that rm 1, the leader, produces;its monopoly quantity in equilibrium. Given this, does the Stackelberg leader necessarily;earn a higher prot than the Stackelberg follower? Explain.;3. Suppose that a monopolist has the ability to impose a two-part tari pricing policy.;Would it necessarily set a positive fee as part of its prot-maximizing policy? Explain.;What would limit a monopolists ability to set such fees?;PART B (Worth one third of the marks, allocate one third of the time);1. A perfectly competitive industry consists of a large number of rms, each of which has;a cost function given by C (y) = 4 + y + y2. Market demand is given by P = 100 0.01Y;a) Derive each rms AC and M C. Derive the long run supply curve for this industry.;(Note the questions says industry supply, not rm supply) Explain its shape.;b) Show the longrun freeentry competitive equilibrium in this industry using a graph for;a typical rm, and a graph for the industry. How many rms operate in the industry, and;what is the output per rm?;c) Now suppose that we are in such an equilibrium when a new technology becomes available.;A new large group of new rms arrives, each of which has a cost function given by C (y) =;4 + y2. What would be the eect of this on your equilibrium above? Explain.;(Turn Page Over);PART C (Worth one third of the marks, allocate one third of the time);2. Consider a monopolist who has access to two groups of consumers for its product. Group;1 has demand P1 (X1) = 5 X1 and group 2 has demand P2 (X2) = 7 X2. The rm has;no costs of production. (M C1 = M C2 = 0).;a) Determine the prot maximizing quantities for the monopolist in each market. Determine the associated prices.;b) Suppose that the rm can use a twopart tari in each market. Determine the prot;maximizing twopart taris for each market.;c) Now suppose further that the rm cannot tell whether consumers are from group 1 or;2 and so must use seconddegree price discrimination. Determine the prot maximizing;twopart taris for each market in this case.;d) Which of these possibilities is best from the economys point of view? Why?;2


Paper#31557 | Written in 18-Jul-2015

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