Market Structure

ASSIGNMENT #3

MARKET STRUCTURE AND GAME THEORY

BY: AMIR GARDEZI

TABLE OF CONTENT

1. MONOPOLY AND OPTIMUM PROFIT…………………………………………………………………….

2. MONOPOLISTIC COMPETITON AND PRODUCT DIFFERENTIATION………………………..

3. DOMINANT STRATEGY AND NASH EQUILIBRIUM…………………………………………………

4. APPENDIX…………………………………………………………………………………………………………….

5. SOURCES……………………………………………………………………………………………………………..

1. Given a graph of a monopoly, it shows market demand, MR, MC and ATC. Determine the quantity that company should sell, at what price and what would be at the optimum profit.

Price should be between 0 and P1, intersect on the AR curve between B and Q1 as shown on graph:

P

MC

P1

B

ATC

B1

Price

MR

0

Y

Q1

DEMAND

P

MC

Optimum Quantity is when O intersects with Q at AR curve line

P1

B

ATC

B1

MR

DEMAND

Q1

0

Y

Optimum Quantity

Optimum Profit occurs when the right goods are sold in the right time. This will be between P0 and P1 and B and B1.

P

MC

P1

B

ATC

Optimum Profit

P0

B1

MR

Q1

Y

DEMAND

2. Given a description of a market situation for a firm operating in a market structure with monopolistic competition, explain how the firm could use differentiation to compete and how this might affect market price of the firm’s product and its operating costs.

Bookstores

It could be argued that bookstores fulfill the four characteristics of Monopolistic Competition as described in Economics for Managers as shown in Table 7.1 (page. 215):

Product Differentiation among Firms

Easy Entry and Exit Monopolistic Competition Large Number of Firms...