Question

Question: 1. Consider the pizza market in a small college town with the following assumptions: i. Ps = 11.0...

1. Consider the pizza market in a small college town with the following assumptions: i. Ps = 11.00; Es = -2.2 ii. Pg = 11.00; Eg = 2.75 iii. Pd = 9.00; Ed = 1.8 iv. P4 = 8.00; E4 = -2 a. The market is in long-run equilibrium. b. Each pizza shop sells 100 pizzas per week. (For ease of exposition, suppose that each shop sells only pizza and only one size.) c. Fixed cost for each shop is $500 per week. d. Price and elasticity for Salamandra's (s), Genoa's (g), Domino's (d), and Four Star (4) are:

2. Based on these assumptions, answer the following questions.

a. What market structure best describes the pizza market in this town? Explain. The market structure that best describes the pizza market in this town would be monopolistic competition. There are a large number of independent markets who sell pizzas but they all offer a differentiated pizza product.

b. What is average variable cost at this output level for each of the four shops? Explain how you derived this result. MR = MC

c. Based on your answers to questions 4a and 4b and the first through fourth assumptions from Step 3, are any of these four firms earning above-normal profit? Explain your answer.

Answer 1

Table 1

Firm	Price	ATC
S	11	6
G	11	6
D	9	4
4	8	3

2. a) Each firm operakes 'inelastic pojrt demoma . Powei. Each charae a He di-ffevtiated. 4-o seu e produai. Thar aa more han Sei na ^i-jfostiated proas ama n mo eanh haxae Thun for four shops t ne AvC.n calculated 4% lonaYwn each monopo s ti competitive Them na ove vwormal po