the following: Please follow these instructions for completing and submitting your as

04 Jun the following: Please follow these instructions for completing and submitting your as

Question
Complete the following:

Please follow these instructions for completing and submitting your assignment:

Place all answers, both numerical and written, in a single excel spreadsheet.

Place each problem into a separate tab or sheet in an Excel file.

Place labels on spreadsheet inputs and outputs, and use the yellow highlighter on the top menu bar to highlight your final answer.

If the question incorporates graphs, you must replicate the graph on your spreadsheet file.

TECHNICAL QUESTION

1. Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.

a. How do you know that the industry is in longrun equilibrium?

b. Suppose that there is an increase in demand for this product. Show and explain the short-run

adjustment process for both the firm and the industry.

c. Show and explain the long-run adjustment process for both the firm and the industry. What

will happen to the number of firms in the new long-run equilibrium?

2. Suppose the demand curve for a monopolist is

QD = 500 ? P, and the marginal revenue function is MR = 500 ? 2Q. The monopolist has a constant

marginal and average total cost of $50 per unit.

a. Find the monopolist’s profit-maximizing output and price.

b. Calculate the monopolist’s profit.

c. What is the Lerner Index for this industry?

3. The top four firms in Industry A have market shares of 30, 25, 10, and 5 percent, respectively. The top

four firms in Industry B have market shares of 15, 12, 8, and 4 percent, respectively. Calculate the

four-firm concentration ratios for the two industries. Which industry is more concentrated?

APPLICATION QUESTION

1. The following facts characterize the furniture industry in the United States:39

a. The industry has been very fragmented, so that few companies have the financial backing to

make heavy investments in new technology and equipment.

b. In 1998, only three U.S. furniture manufacturers had annual sales exceeding $1 billion. These

firms accounted for only 20 percent of the market share, with the remainder split among 1,000

other manufacturers.

c. Capital spending at one manufacturer, Furniture Brands, was only 2.2 percent of sales compared with 6.6 percent at Ford Motor Company. Outdated, labor-intensive production techniques were still being used by many firms.

d. Furniture manufacturing involves a huge number of options to satisfy consumer preferences,

but this extensive set of choices slows production and raises costs.

e. Small competitors can enter the industry because large manufacturers have not built up

any overwhelming advantage in efficiency.

f. The American Furniture Manufacturers Association has prepared a public relations campaign to “encourage consumers to part with more of their disposable income on furniture.”

g. In fall 2003, a group of 28 U.S. furniture manufacturers asked the U.S. government to impose

antidumping trade duties on Chinese-made bedroom furniture, alleging unfair pricing.

h. The globalization of the furniture industry since the 1980s has resulted from technological

innovations, governmental implementation of economic development strategies and regulatory regimes that favor global investment and trade, and the emergence of furniture manufacturers and retailers with a capacity to develop global production and distribution networks. The development of global production networks using Chinese subcontractors has accelerated globalization in recent years.

Discuss how these facts are consistent with the model of perfect competition

2. In a perfectly competitive industry, the market price is $25. A firm is currently producing 10,000

units of output, its average total cost is $28, its marginal cost is $20, and its average variable cost

is $20. Given these facts, explain whether the following statements are true or false:

a. The firm is currently producing at the minimum average variable cost.

b. The firm should produce more output to maximize its profit.

c. Average total cost will be less than $28 at the level of output that maximizes the firm’s profit.

Hint: You should assume normal U-shaped cost curves for this problem.