Solutions of chapter 6. Non-competitive Markets | Introductory Microeconomics

1

What would be the shape of the demand curve so that the total revenue curve is

(a) a positively sloped straight line passing through the origin?

(b) a horizontal line?

2

From the schedule provided below calculate the total revenue, demand curve and the price elasticity of demand:

Quantity	1	2	3	4	5	6	7	8	9
Marginal Revenue	10	6	2	2	2	0	0	0	-5

3

What is the value of the MR when the demand curve is elastic?

4

A monopoly firm has a total fixed cost of Rs 100 and has the following demand schedule:

Quantity	1	2	3	4	5	6	7	8	9	10
Price	100	90	80	70	60	50	40	30	20	10

Find the short run equilibrium quantity, price and total profit. What would be the equilibrium in the long run? In case the total cost was Rs 1000, describe the equilibrium in the short run and in the long run.

5

If the monopolist firm of Exercise 3, was a public sector firm. The government set a rule for its manager to accept the government fixed price as given (i.e. to be a price taker and therefore behave as a firm in a perfectly competitive market), and the government decide to set the price so that demand and supply in the market are equal. What would be the equilibrium price, quantity and profit in this case?

6

Comment on the shape of the MR curve in case the TR curve is a (i) positively sloped straight line, (ii) horizontal straight line.

7

The market demand curve for a commodity and the total cost for a monopoly firm producing the commodity is given by the schedules below. Use the information to calculate the following:

Quantity	0	1	2	3	4	5	6	7	8
Price	52	44	37	31	26	22	19	16	13

Quantity	0	1	2	3	4	5	6	7	8
Price	10	60	90	100	102	105	109	115	123

(a) The MR and MC schedules

(b) The quantites for which the MR and MC are equal

(c) The equilibrium quantity of output and the equilibrium price of the commodity

(d) The total revenue, total cost and total profit in equilibrium.

8

Will the monopolist firm continue to produce in the short run if a loss is incurred at the best short run level of output?

9

Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.

10

What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?

11

List the three different ways in which oligopoly firms may behave.

12

If duopoly behaviour is one that is described by Cournot, the market demand curve is given by the equation q = 200 – 4p, and both the firms have zero costs, find the quantity supplied by each firm in equilibrium and the equilibrium market price.

13

What is meant by prices being rigid? How can oligopoly behaviour lead to such an outcome?

Solution of Chapter 6. Non-competitive Markets (Introductory Microeconomics Book)

Exercises