Answer to Question #49147 in Microeconomics for James stevie
1. Consider a monopolistically competitive industry. A graph of demand and cost
conditions for a typical firm is depicted in the diagram below.
(A) Show graphically whether or not the firm generates any producer surplus and any profit
(B) Suppose that the government reduces annual licensing fees, causing the fixed cost of the
typical firm to fall. Make appropriate shifts of all curves that might be affected. What happens to
producer surplus? What happens to profit? Do you expect the fall in fixed costs to cause entry
into or exit from this industry? Explain.
2 A monopolistic seller of silk garments faces the following demand curve: Q= 45 - 0.25P The total cost function of the firm is TC = 1000 + 20Q.
(A) Calculate the profit-maximizing price for this seller and the size of profits
(B)Suppose the government levies a £40 tax per unit on sellers of silk garments.
Calculate how this tax will affect the price