1. Markets and competition Identical products, as well as a large number of buyers and sellers, are characteristics of a sellers of goods influence the prevailing market price, giving them the role of price market. In such markets, in the market. True or False: The market for public utilities, such as gas and electricity, exhibits the two primary characteristics that define perfectly competitive markets. True False

1. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 - 2p     Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker’s neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker’s neighbors.  (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?

1. Characteristics of competitive markets The model of competitive markets relies on these three core assumptions: 1. There must be many buyers and sellers-a few players can't dominate the market. 2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not. Scenario There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which enables students with diverse preferences to find schools that match…

2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qy = 60 – 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors. (a) Plot the private demand curve and private supply curve for both cigarettes on separate axes. (b) What is the privately efficient quantity demand of both cigarettes? (c) Add the public supply curves to the graphs you plot in (a). (d) What is the socially efficient quantity demand of both cigarettes?

6. Consider a good with a production process with fixed costs and constant marginal costs. Which of the following statements are correct? a) If marganal costs are zero the good is non-excludable. b) If marginal costs are zero the good is non-rival. c) A Pareto-efficient market equilibrium implies that the production process cannot cover its costs. d) A Pareto-efficient market equilibrium requires a price of zero.

Which of the following describes the type of entry barrier faced for electricity transmission? A. There is a created entry barrier for electricity transmission because it is cheaper to have only one set of power lines serving a given region. B. There is a created entry barrier for electricity transmission because entry into the market has been limited by the economies of scale. °C. There is a natural entry barrier for electricity transmission because it is cheaper to have only one set of power lines serving a given region. O D. There is a natural entry barrier for electricity transmission because entry into the market has been limited by government restriction. Which of the following describes the type of entry barrier faced for municipal sewage services? A. There is a natural entry barrier for municipal sewage services because it is cheaper to have only one sewer system serving a given region. B. There is a natural entry barrier for municipal sewage services because entry into the…

2. Imagine there are 2 hot dog vendors on a linear beach 100 yards long. Assume: Customers are evenly distributed along the beach, located at the endpoints and spaced 5 yards apart. Production costs are 0. ● Both vendors sell hot dogs for p dollars. The cost to consumers of travel is 2 cents per yard. a. What are the profit-maximizing equilibrium locations, if any, for the three vendors? If there is an equilibrium, what do aggregate travel costs equal? b. What are the socially optimal locations, if any, to minimize travel costs? If there is a social optimum, what do aggregate travel costs equal?

2. Market structures For each of the following scenarios, identify the number of firms present, the type of product, and the appropriate market model. Select the matching entry for each dropdown box in the following table. Scenario There are hundreds of colleges and universities that serve millions of college students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care about who sells them their socks. The technology for producing socks is widely known, and any reputable person who wanted to start a sock manufacturing business could obtain a loan from a bank to buy the necessary machinery. In a small town, there are four providers of broadband Internet access: a cable company, the phone company, and two satellite companies. The Internet access offered by all four…

1. Consider two companies involved in the supply chain: a retailer who faces customer demand and a manufacturer who produces and sells ski jackets to the retailer. It costs the manufacturer $30 to manufacture and ship each ski jacket. The retailer plans to sell the ski jacket for $300. At this price, demand for the ski jackets is estimated to be 10000 units with a 20 percent chance of happening, 9000 units with a 40 percent chance of happening, and 8000 units with a 40 percent chance of happening. Any ski jacket not sold during the ski season is sold to a discount store for $20. We refer to this value as the salvage value. Both the manufacturer and the retailer can sell the ski jackets they still have on hand after season for this salvage value. (a) Suppose the manufacturer sells to the retailer at $80/unit. How many ski jackets should the retailer order? How much profit does the retailer expect to make as a result? How much profit will the manufacturer make as a result? (b)What is the…

3. An industry is subject to agglomeration economies (and diseconomies). The profit per firm is £100 for an isolated firm, and increases to a maximum of £160 per firm in a cluster with 6 firms. The profit curve is linear, with a slope of +£12 in the positively-sloped part and -£10 in the negatively-sloped part. Illustrate this profit curve. What will be the equilibrium number of firms in the cluster and how much profit will each firm make? Will this be greater than the efficient number of firms? Explain why.  How will an increase in transport costs affect the profit curve and the optimal cluster size? Briefly explain your answer.