1. There are 1,000 firms in the local compact disc industry. The market is perfectly competitive. Each firm faces the following:

Market Demand for Compact Discs

Price                                  Qd                                                                                              ($ per unit)              (thousand per week)

3.50                                   500

4.40                                   475

5.30                                   450

6.00                                   425

6.80                                   400    

7.60                                   375

8.40                                   350

9.20                                   325

10.00                                  300

11.40                                  275

12.80                                  250

Cost Structure of Individual Firm Output                                                               (units per       MC         AVC            ATC                                                             week)          ($/unit)    ($/unit)       ($/unit)

150            6.00              8.80         15.40

200            6.80              7.80         12.80

250             7.00             7.00         11.00

300             7.65             7.10         10.40

350            8.40              7.20         10.06

400            10.00            7.50         10.00

450            12.50            8.00         10.22

500             12.70           9.00         11.00

Notes: MC: marginal cost; AVC: average variable cost;   ATC: average total cost

 1.1 What are the market price and the industry's output?

1.2 What is the output of each firm? Does each firm make economic profit in the short-run?

1.3 What is the long-run equilibrium price? How many firms will there be in the industry in the long run?

2. Mickey Inc. is a single-price monopoly of a special soft drink.

Price     Quantity demanded  Quantity produced  Total cost  ($/bottle)(Millions of bottles)(Millions of bottles)($million)

12                  0                  0                     1

10                  1                  1                     4

8                  2                  2                     10

6                  3                  3                     17

4                  4                  4                    29

2                  5                  5                    42

2.1 What are the profit-maximizing levels of output and price? How much economic profit does this company make?

2.2 If Mickey Inc. can perfectly discriminate, what are the profit-maximizing output and economic profit?

2.3 What is the maximum price that someone would be willing to pay for a license to operate Mickey Inc.?

Markets & Pricing- Discussion Topic Questions:

 (I) Discuss whether each of the following represents price discrimination:

(a) Cinema tickets on Tuesday are cheaper than on other days of the week.

(b) Higher tuition fees for medical students than for law students.

(c) Airline tickets are more expensive during holiday seasons than in other times of the year.

(II) Discuss the possible market structure of each of the following industries:

(a) Restaurant operation

(b) Cigarette manufacturing