Assume a number of street vendors sell hamburgers in a city. Each vendor has a marginal cost of 30 NOK per hamburger sold and there are no fixed costs. The maximum number of hamburgers that any vendor can sell is 100 per day. a) If the market is perfectly competitive and the price of each hamburger is 40 NOK. How many hamburgers does each street vendor want to sell and what is each vendor’s profit per day assuming the desired quantity is sold? b) Why is this solution not a long run equilibrium? c) Suppose all the vendors merges and thus appears as a monopolist in the market. After merging marginal cost is constant. Make a diagram and explain the optimal solution for the monopolist.
Assume a number of street vendors sell hamburgers in a city. Each vendor has a marginal
cost of 30 NOK per hamburger sold and there are no fixed costs. The maximum number of
hamburgers that any vendor can sell is 100 per day.
a) If the market is
How many hamburgers does each street vendor want to sell and what is each vendor’s
profit per day assuming the desired quantity is sold?
b) Why is this solution not a long run equilibrium?
c) Suppose all the vendors merges and thus appears as a monopolist in the market. After
merging marginal cost is constant. Make a diagram and explain the optimal solution
for the monopolist.
d) How can you explain that the solution from c) is such that the profit is maximized?
e) Explain the
f) Suppose many consumers in this hamburger market became “addicted”. How would
you explain this change in consumers demand and how would it affect social cost?
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