1. Assume that in the independent nation of Qari sugar production is controlled by a sugar monopoly, SugarCo, which earns economic profits. There are well over a million buyers of sugar in Qari but only one seller of sugar. Imports of sugar are forbidden.
a. In what type of market structure does SugarCo compete? List and briefly explain the characteristics of this market structure.
b. Draw a graph that shows the determination of the profit maximizing price and quantity of sugar in SugarCo.
· Label the profit maximizing price as "Ppm" and the quantity produced as "Qpm."
· Shade in the area of economic profits.
· Outline or shade in the deadweight loss.
c. Neighboring nation Nari now invades Qari and topples its government. SugarCo is destroyed and the sugar market is broken into hundreds of competing firms, all selling an identical product. In what type of market structure do these new firms now compete? List and briefly explain the characteristics of this new market type.
d. How will the price and quantity sold in this new market (part c) differ from the price and quantity you determined in part b, above? Redraw the graph from part b but show the price and quantity from part b and the price and quantity from part c.
e. SugarCo was the sole employer of sugar workers. What will happen to the wages of sugar workers once the sugar industry becomes competitive?
2. The table shown below gives the short-run total cost function Noel’s window cleaning firm. This firm competes in a perfectly competitive market.
a. What is the firm’s total fixed cost in dollars? How do you know this?
b. What is the marginal cost for the 5th unit of output?
c. Noel’s firm charges the market price for window washing jobs, $30/job. At what output will the firm maximize profit? What will that profit be?
d. Given the results in part (c) above, explain what will happen to the number of firms in the industry in the long-run.
Below is the market for "Isays," a new voice recognition software program.
[img src="http://learn.flvs.net/webdav/assessment_images/educator_apmicro_v9/06_03FRQ_q05.gif" alt="This is the Isays software market graph">
a. How will the market be impacted by a highly successful new ad campaign for Isays? Describe which curve will be impacted, which direction that curve will move and the direction of change for the price and quantity equilibrium.
b. Estimate the cost of production for Isays using the points on the graph above. Explain your reasoning.
c. Besides a highly successful ad campaign, identify 3 other events that could shift the demand curve to the right.
d. If the government imposed a per unit tax on teach sale of Isays, how will the graph be impacted? Add the new line that shows the new tax to the current graph. Discuss the impact of this tax on the Pe and Qe.