1. Unit IV: Imperfect Competition
Problem Set #4 Points Distribution

2. 1a. Barriers to Entry -Skip (Gax will grade)

3. 1b. MR=MC Rule
1 Point- Profit-maximizing point, true for all market structures
1 Point- Explanation of why MR=MC is the rule (any point beyond the firm is losing money)
1 Point- Clear example of MR=MC Rule using numbers

4. 1c. Price Discrimination
1 Point- Definition (charging customers different prices for the same product)
1 Point- Qualifications (monopoly power, no resell, segregate the market)
1 Point- Clear example

5. 1d. Socially Optimal Price
1 Point- P=MC
1 Point-Allocatively Efficient
1 Point- Clear example using numbers/graph.

6. 1e. Fair Return Price
1 Point- P=ATC
1 point- Zero economic profit/normal profit/TR=TC
1 Point- Clear example of FRP using numbers or a graph.

7. Problem Set Question #3: Worksheets

8. A Quick Review of PC and Monopoly
½ Point for EACH
1. A
5. C
9. C
2. C
6. D
10. C
3. D
7. A
11. C
4. B
8. C

9. Regulating a Monopoly 1 point-each question (All must be correct)
1. Unregulated
1500 $4
$6000
$4500
$1500 Profit
2. Socially Optimal (Approx. Ok)
3,000
$1.50
$4,500
$7500
$3000 Loss
Yes
$3000 (amount of the loss)

10. Regulating a Monopoly 1 point-each question (All must be correct)
3. Fair Return
2500
$2.50
$6250
Zero Economic Profit
4. If not answered, (-1)
5. If not answered, (-1)

11. Question 4 Price Quantity Demanded Total Revenue Marginal Revenue
$11.00  0  - 10 1
 10 9 2
 18  8 8 3
 24  6 7 4
 28  4 6 5
 30 2 
 -2
 -4
 -6

12. 4. Demand, MR, and TR for Monopolies
a. Why the MR curve less than the demand curve for all imperfectly competitive firms.
3 Points- To sell more the firm must lower price It lowers price for ALL units. (It can’t charge people different prices)
2 Point- SPECIFIC numerical example that proves that the MR is less than the price.

13. b. Plotting MR and TR Curves
1 Point- correctly plotted demand and marginal revenue curves with D above MR
1 Point- correctly plotted TR with TR rising then falling
1 Point- Identifies that elastic range is to the left where MR is positive and inelastic is on the right.
1 Point- Total Revenue test says that when price falls and TR increases, demand is elastic
1 Point- Total Revenue test says that when price falls and TR decreases, demand is inelastic

14. Labeled elastic and inelastic ranges.
Dollars MR D Q
Dollars TR Q

15. 5. Compare AND contrast monopolistic competition and perfect competition
2 Point (similarities)- perfect comp and mono comp have the following in common:
Many Firms
Easy Entry/Exit
Zero economic profit in LR
3 Points (differences)-perfect comp and mono comp have the following differences:
MC: controls price; PC: price takers
MC: D>MR; PC: D=MR
MC: advertising used; PC: no advertising
MC: Not All./Prod. Eff. In LR; PC: Both

16. Explain Oligopolies
2 Point- Identify the characteristics of an Oligopoly (few firms, large control over price, identical/differentiated products, high barriers to entry)
2 point- Explanation of game theory, ability to collude and incentive to cheat
1 Point- They explain that the kinked demand curve shows that non-colluding oligopolies match price cuts and ignore price increases.