Sprint LTE 200 PM moodle3lsuedu Exercise 4 Monopoly profits

Sprint LTE 2:00 PM moodle3.lsu.edu Exercise 4: Monopoly profits in Duopoly [2 points] The figure Monopoly Profits in Duopoly illustrates a situation in which an industry consisting of two firms that face identical demand curves (Dcan collude to increase profits. iWhich of the following assumptions is not a part of the analysis illustrated by the model? a. The two firms are identical. b. The two firms sell identical products. c. While the firms face the same MC curves, their respective TC curves have unequal slopes. d. Each firm has a horizontal marginal cost curve. ii) If the firms collude and agree to share the market demand equally, then each firm will act as if its demand curve is given by , while the market demand curve is given by a. D MR c. D; D d. MR; MR iii) Suppose the duopoly industry illustrated in the figure Monopoly Profits in Duopoly produces a perishable good. If the industry were perfectly competitive, the market price would likely end up being , and the combined economic profits of the firms would be a. F, given by the area of the rectangle bounded by OP b. P; zero c. P,; given by the area of the rectangle bounded by OP AQ d. P; given by the area of the rectangle bounded by P,P,GB

Solution

4) i) C)  While the firms face the same MC curves, their respective TC curves have unequal slopes.

While Marginal Cost is same for both firms, The Total cost is clearly varying.

ii) C) D₁;D₂

If firms agree to share the market the demand curve will be D₁, where Q₃=Q₅-Q₃. But the demand curve is given at D₂, where P₁=MC

iii) B) P₁; zero

as, in perfectly competitive market P=MC, therefore the market price is equals to Marginal Cost P₁, where economic profit is zero

Ex.4) iii) D) P₂; given by the area of the rectangle bounded by P₁P₂BG