ECON 4333-001 (online)
Spring 2020
Homework Assignment #2-Revised
Price
500
300
100
200 400 Quantity/Monthly

MR

1. This question is based on the figure above, which describes cost and demand conditions in the widget industry. Assume that costs functions to not vary according to market structure (competition vs. monopoly, for example). Complete the following table. All variables should be expressed in dollars. (Hint: use the Cowling and Mueller method for measuring consumer surplus and deadweight)

Market Structure Price Quantity Economic Profit Consumer Surplus Dead Weight Loss Competition Monopoly

2. The following table illustrates the distribution of retail grocery sales in the Asheville, NC market:

Market
Retailer Share (%)
Kroger 35
Wal-Mart 26
Food Lion 12
Piggly Wiggly 8
IGA 7
The rest 4 each

a) Compute the four-firm concentration ratio (CR4).
b) Compute the eight-firm concentration ratio (CR8).
c) Compute the Herfindahl (H) index.

3. Two firms, A and B, have complete control of the supply of mineral water and both have zero costs. Their best reply functions (BRP) are given by:

qA = 10 - .5qB
qB = 10 - .5qA

a) Find the Cournot solution for the market price and output of mineral water and illustrate with a simple graph.
b) The (inverse) demand function facing a mineral water monopolist is given by:

P = 200 – 10Q

The marginal revenue (MR) function is, therefore, given by:

MR = 200 – 20Q