Market Structure: Monopoly and Monopolistic Competition

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Assignment #2 – Market Structure: Monopoly and Monopolistic Competition
ECO550: Economics for Managers

Assignment 2

Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office maintenance firms, and both technology and labor requirements are very basic. Supply and demand conditions in this perfectly competitive service market in New York are:

|QS = 2P - 20 |(Supply) |
| | |
|QD = 80 - 2P |(Demand) |

where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.

|A. |Algebraically determine the market equilibrium price/output combination. |

When calculating for equilibrium, QS = QD

2P – 20 = 80 – 2P 4P = 100 P = 25

When substituting the value of P in the equation for supply and demand, we calculate the value of Q as

QS = 2P – 20 QS = 2*25 – 20 QS = 30

Equating both supply and demand and solving it for Q

2p+2p=80+20 4p = 100

P = $25 Q = 30 (thousands of hours)

|B. |Use a graph to confirm your answer. |

For the graph use:

Prices: 10, 20,30,40,50,60,70,80,90 Quantities: 5,10,15,20,25,30,35,40,45,50,55,60,65

[pic]

The figure below shows a firm in a perfectly competitive market:

a. Find the price below which the firm will go out of business.

When firms price below the minimum in a purely competitive market, that is when they risk going out of business. As long as firms…...

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