Question

PART I. Short Answers - Concepts Answers, including diagrams, should be limited to one half of a page. 1. Consider a perfectly competitive market. a) In the short-run, is the supply curve upward sloping, downward slop- ing or flat? Why is that the case? b) In the long-run, is the supply curve upward sloping, downward slop- ing or flat? Why is that the case? If your answer differs from (a), explain the difference. c) True or False: If private health care providers make profits, then public health care provision is cheaper. Explain. 2. Consider a monopolistic market a) One of the reasons for monopoly lies in the production process. What cost structure of a firm constitutes an entry barrier to the market that can result in a monopoly? b) Suppose that the reason for a monopoly is a patent issued by the government. What is an argument for issuing such a patent? c) Can perfect price discrimination by a monopolist increase welfare? Argue why, or why not it is the case?

Kindly include diagrams and full work.

Answer 1

al Consider a perfectly Competitive Marleet. Sal. In short nun: -) The short oun supply curre of a ham, which u based on its short ann marginal cost worve [SMC] and average variable cast arve [ArcJ -) At any market price, the marginal cart curre shows the output level that maximizes the profit. -) a perfectly competitive firm will produce at the level of output aut which P=MC, as long as P> Avc. SMC SAC AVC. Pouce. O Autput supply curve The muell slope

upwards in an perfectly competition market. -> In a perfectly competitive form supply curre is a portion or ata marginal cost curve that lies above the minimum of the average variable cort curre. -> It maximirger profit by producing the quantity of output that equates price and marginal coat. Q6) In long run - All firme have idendical cost conditions. The case of a constant coat industry, the long-run supply curre is a horizontal straight line. - Perfect competition Long Ran, the doar making hinne will exit the

industry and new home will enter the market. -> In the long run equilibrium , firms enjoy market effeciencies, which might clead to scarce resources not being wasted. ya we ya i Sohie. So normal LLAC ARI = MRip – – – LRS ---- ARI =M à á a output output - The long run supply cure null be morre elastic than the short and supply curve. The reason in that the long- dun supply curve represents the behaviour of more time, which means that any given change in price and have

a larger effect on the quantity supplies Qc). Private health care firme may have efficient incentives to provide better service than goremment health care provielers. Then the Anruer is "TRUE" Explain: > Health care doesn't work as a free market. > They don't go shopping around for best or cheapest health care , .... private health care insurance firmę make charge profit meaning more expensive health care for countries like us, who have private provision. 2) In a monopolistic market:

Qa) A monopoly exists when a specific person ou enterprice un the only supplier of a particular commodity. Economies of scale: Demearing unit costs for larger voclume of production.. Devrearing costs coupled with large initial costa, And if the longterm average cost of the dominant company is consterantly decreasing, then that company will continue to have the least cost method to provide a good or service. Contral of natural resources: A prime source of monopaly, pamer is the contral of resources that are critical to the production of a final good .

Cost of price, LRAC. a retpat. - Barriers include ! economies ofre scale that clead to natural monopodly control or a pherical resource; clegal restriction on competition; patent, trade mark and copyelight production and practices to intimidate the competition like predatory pricing. Qb) A natural monopoly existe ief: average cost of production at dowelt when only one diom produce the entine industry output

>A patint does not give one a. monopaly in the sense of having the abrodute right to practice the protected invention, > Juk gereel one the right to keep others from making, wing, offering toy rake, relling and importing the claimed. Invention and thereby provides a meaning seed exclusionarry ought. Argumenta: - Low quality, already known as obvious patent hampers innovation and comme ualization. y Patente weakent the public domain. and innovation that comes from at. - Patent thickets, or an overlapping set of patent rights, in particular now innovation. J Brroad patents even company trom commecialirging products and hurt innovat

O Enden an Price dixcrimination increased the monopolista profit but decreased consumer supplus, under an. average-revenue constraint with no Hightening The welfare may be either positive or negative on neat effect o Ases well known, price discrimination is bad in so far an output is subopti- mally distributed accort consumere Impact on consumer welfare - Consumes surplus & reduced in most caree - representing a loss of melfare. -) For the majority of buyers, the price charged is well above the marginal cost of supply -) Howerer some consumers who can. how buy the product at a lower porca may benedit.

Producer surplus and use of profit: - Price discrimination benefits businesses through higher revenue and profits. - A discriminating monopaly is exacting Consumer surplus and turning it into ruper normal pratit / producer surplus. A counter argument that the price discrimination might be a way of making a market some contestable. - Lowest airlines have been haargely, successful by wing price discrimination to fill their planes. - Profits made in one market may allow froms to crow - . & ebridis lon- making activities / services that have important social benechitd.