Microeconomics
Problem Set #9
Monopolistic Competition and Oligopoly
Use the following information to answer questions 1 through 5:
The graph below shows the demand curve and cost data for a firm operating in a
monopolistic competition.
1. The blue line shows:
a. Marginal Revenue
. Marginal Costs
c. Demand Curve
2. The red line shows:
a. Marginal Revenue
. Marginal Costs
c. Demand Curve
3. The black line shows:
a. Marginal Revenue
. Marginal Costs
c. Demand Curve
4. The profit maximizing quantity for this firm is:
a. 10
. 15
c. 5
d. 30
5. What price will this firm set in order to maximize profits (or minimize losses)?
a. 30
. 35
c. 25
d. 10
6. The table below shows data for the production of Avocados for an individual firm in a
monopolistic competition.
Quantity of Avocados Price Total Costs MR
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Given this data, complete the table:
Quantity of
Avocados
Total Revenue
(TR) Profit
Marginal
Revenue (MR)
Marginal Costs
(MC)
100 - -
200
300
400
500
600
Use the following information to answer questions 7 through 9:
The table below shows data for the production of Avocados for an individual firm operating
in a monopolistic competition.
Quantity of Avocados Price Total Costs
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
7. At what quantity are marginal revenues equal to marginal costs?
8. What is the profit maximizing quantity?
NOTE: If there are two quantities with the same level of profits, pick the larger of the two
quantities!
9. What is the profit maximizing price?
NOTE: If there are two quantities with the same level of profits, pick the larger of the two
quantities!
Use the following information to answer questions 10 through 12:
Consider the following prisoner's dilemma with the payoff matrix (Numbers represents
years in prison):
Person B
Confess Remain Silent
Person A Confess A gets 25
B gets 25
A gets 5
B gets 40
Remain Silent A gets 40
B gets 5
A gets 10
B gets 10
10. What is the dominant strategy for player A?
a. Remain silent.
. There is no dominant strategy.
c. Confess.
11. What is the dominant strategy for player B?
a. Remain silent.
. There is no dominant strategy.
c. Confess.
12. What is the Nash Equili
ium (in pure strategy)?
a. 25, 25
. 40, 5
c. 10, 10
d. 5, 40
e. There is no Nash equili
ium.