Market Structure

Perfect Competition

1. Consider the following market demand and supply curves in a perfectly competitive
industry as Q = 25 – 0.5P, Q= 10 + 1.0P. Now consider a firm in the industry whose cost
function is C = 25- 2Q + 4Q2. Should this firm produce in the short run? If it produces
then in how much quantity should it produce?

Monopoly

1. Demand curve of a monopolist is given by

P = 110-4Q

Marginal cost for the monopolist is constant and is equal to 10.

a. What are the profit-maximizing price and output?

b. If the industry is perfectly competitive, what would be the price and output?

2. Cost function of a monopolist is TC = 1000 + 20Q.The demand function for the

monopolist is estimated to be P = 200 – 4Q.
a. Compute the profit maximizing output and the profit at that level of output for the
monopolist.
b. If the industry transforms into a duopoly, what would be the equilibrium output for the
industry?

3. ABC Company, which supplies power to households and industries, faces the following total
cost function. TC = 22000 + 100Q

The demand for power by the two clearly separable sets of consumers is given by the
following demand functions.
Household : P1 = 300 – 0.5Q1
Industries: P2 = 200 – 0.5 Q2

Required:
a. If price discrimination is not permitted, determine price charged by the company and
profit earned at that price.
b. If price discrimination is legalized, determine the price charged by the company and the
profit earned at that price.

4. The demand equation of local movie theater in Kolkata for balcony seats and dress circle
seats are given respectively as: Qb = 60 – 2Pb and 3Qdc = 56- Pdc. The total cost of running
show by multiplex is TC = 40 + 20Q. What would be the price of tickets with price
discrimination? What would be the price of multiplex decides to charge the same price across
both the types of seats.

Oligopoly

1. In a duopoly, the industry demand function is P =100 – 0.5 Q

Cost functions of the two firms are:
C1- 5Q1, C2 = 0.5Q22
a. What is the output and price in duopoly?
b. What are the profits earned by each firm?

2. Suppose that the market demand function for a two firm equal market-sharing cartel is,Q =
120-10P and that the total cost function of each duopolist is,TC = 0.1 Q 2. Determine the best
level of output of each duopolist, the price at which each will sell the commodity and the
total profits of each.

Monopolistic

1. A firm operating in a monopolistically competitive market faces the following demand

function

P = 8000- 4Q

LAC = 8000 – 7Q + 0.002Q2

a. Find profit maximizing price and output for the firm? What is the profit at this output?
b. Is the industry in equilibrium? Why or Why not?