Monopolistic Competition I. Consider the model of monopolistic competition with homogeneous firms developed in class. Firms have a constant marginal cost c, pay a fixed cost F, and sell differentiated varieties. The overall size of the market is S. A parameter b governs the consumers' sensitivity to price deviations from industry average, in terms of lost/gained market share. Firms enjoy market power and charge a markup over marginal cost. There is free entry. Use a diagram to study the consequences of the following shocks for the number of varieties sold to consumers, the price charged, the markup, and welfare. 1. A decrease in the fixed cost F. 2. A decrease in the marginal cost c. 3. An increase in the size of the market, S.

Monopolistic Competition I. Consider the model of monopolistic competition with homogeneous firms developed in class. Firms have a constant marginal cost c, pay a fixed cost F, and sell differentiated varieties. The overall size of the market is S. A parameter b governs the consumers' sensitivity to price deviations from industry average, in terms of lost/gained market share. Firms enjoy market power and charge a markup over marginal cost. There is free entry. Use a diagram to study the consequences of the following shocks for the number of varieties sold to consumers, the price charged, the markup, and welfare. 1. A decrease in the fixed cost F. 2. A decrease in the marginal cost c. 3. An increase in the size of the market, S.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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