Demand Curve in Monopoly and Monopolistic Competition Questions
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You are an economic analyst for Acme Fresh Chicken, which produces chickens for fresh
(never-frozen) sale. (Producing chickens for frozen sale is a separate market.) The fresh chicken
market is perfectly competitive, and there are many firms that produce fresh chickens. You are
briefing the CEO of the company, who is smart but has not taken an economics course.
Popeye’s Chicken, one of the major buyers of fresh chickens, has recently settled a labor dispute
by substantially raising its employees’ wages.
How will this event affect the fresh chicken market and Acme Fresh Chickens in the short and
long run?
Answer:
Question 2 (3 points)
Does it make sense to set up a commodity buffer stock for fresh chickens? Why or why
not?
Answer
Question 3 (5 points)
The individual demand curve for a good is linear and downward sloping. At a price
greater than or equal to $10, an individual will want zero of that good; If the price is zero,
an individual will want 100 of that good. (In other words, the demand curve is P=10-1/10
Q .)
There are no fixed costs associated with providing the good.
Our society consists of exactly 100 identical individuals.
If the good is a private good, then if the price is zero, our society will want 10,000 of the
good, and if the price is $10, our society will want zero of the good.
If the good is a public good, then if the price is zero, our society will want 100 of the
good, and if the price is $10, our society will want about 100 (exactly 99.9) of the good.
Explain.
Answer
Question 4 (5 points)
Explain this game.
Answer
Question 5 (5 points)
Describe five total differences and similarities between monopoly and monopolistic
competition.
Answer
Question 6 (5 points)
EXTRA CREDIT: The Denver Cat Company, in the upscale yuppie shopping district
of The Highlands, is the only cat cafe in Denver.
Some of my students argue that the Denver Cat Company is a monopoly, the only cat
cafe in Denver. Others argue that it is in monopolistic competition with the other
business on Tennyson Street.
As an academic researcher, you have access to all the accounting data for the Denver
Cat Company and all the businesses in The Highlands. You can also perform any
experiment.
How would you determine whether the Denver Cat Company is a monopoly or in
monopolistic competition?
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