1. There are n firms operating in the competitive market for good 2. Each firm has the cost function c(q) = βq2. Solve for the equilibrium price p2.2. Now consider an alternative market structure while keeping the same group of consumers. Suppose the industry of good 2 is monopolistic, with the cost function c(q) = βq2. Solve for the equilibrium price p2. Does this market structure give an efficient equilibrium outcome? Briefy explain the intuition. Consider an economy with 2 consumption goods and N consumers, all with the sameutility function:α 1-au(x1, x2) = x²x²¯ª, where and a € (0,1).The goods prices are p₁ = 2 and p2. Among the consumers, half of them each haveincome y₁ and the rest have income y2.

Problem Setup:Consumers: There are NNN consumers, half with income y1 and the rest with income y2.…

Answered: Consider an economy with 2 consumption…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. There are n firms operating in the competitive market for good 2. Each firm has the cost function c(q) = βq². Solve for the equilibrium price p₂.

2. Now consider an alternative market structure while keeping the same group of consumers. Suppose the industry of good 2 is monopolistic, with the cost function c(q) = βq². Solve for the equilibrium price p₂. Does this market structure give an efficient equilibrium outcome? Briefy explain the intuition.