Please answer the following 2 short answer questions1) Suppose that the market for bottled water is...

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Please answer the following 2 short answer questions1) Suppose that the market for bottled water is perfectly competitive.a. Draw the current equilibrium, using graphs for the entire market and for an individual bottled water company.b. Now suppose that a scientific study find that tap water is toxic, and everyone should drink only bottled water. Illustrate the impact of this study on the market and each firm. Use graphs to illustrate your answer.c. What will happen in the long run to this market and each firm?2. Now assume that the bottled water market is a monopoly because of even more mergers. Illustrate graphically the monopolist’s: profit, quantity, price and deadweight loss. If the monopolist can perfectly price discriminate, what happens to your answers? Given this, is price discrimination a good or bad thing for a monopolist to pursue?
	
Document Preview: Please answer the following 2 short answer questions 1) Suppose that the market for bottled water is perfectly competitive. a. Draw the current equilibrium, using graphs for the entire market and for an individual bottled water company. b. Now suppose that a scientific study find that tap water is toxic, and everyone should drink only bottled water. Illustrate the impact of this study on the market and each firm. Use graphs to illustrate your answer. c. What will happen in the long run to this market and each firm? 2. Now assume that the bottled water market is a monopoly because of even more mergers. Illustrate graphically the monopolist’s: profit, quantity, price and deadweight loss. If the monopolist can perfectly price discriminate, what happens to your answers? Given this, is price discrimination a good or bad thing for a monopolist to pursue? Created with an evaluation copy of Aspose.Words. To discover the full versions of our APIs please visit: https://products.aspose.com/words/

Robert · Accepted Answer

Please answer the following 2 short answer questions 
 Please answer the following 2 short answer questions 
1) Suppose that the market for bottled water is perfectly competitive. 
a. Draw the current equilibrium, using graphs for the entire market and for an individual bottled water company. 
In this case, as the market is perfectly competitive, the market equilibrium price is taken as given by producers. 
The market equilibrium is reached when we have, market demand =market supply. Let’s assume, the equilibrium price is P*.
The individual producers maximize profit , given this market equilibrium price.
At P=P*
q=firm output level
Total revenue=P*q
Average revenue=marginal revenue=P*
Total cost=C(q)
C’>0          (marginal cost is positive)
C”>0            (marginal cost must be rising to ensure absence of IRS)
Each producer maximizes profit 
П=P*q-C(q)
1st order condition to profit maximization:
     d П/dq=0
    P*=C’(q)
     2nd order condition:
d2 П/dq20 , i.e marginal cost must be rising at equilibrium.
The required figure is given below.

Please answer the following 2 short answer questions 1) Suppose that the market for bottled water is perfectly competitive. a. Draw the current equilibrium, using graphs for the entire market and for...

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