The long-run equilibrium quantity and price in a perfectly competitive and monopolistic firm and their profits have to be derived and compared. Concept Introduction: Perfect Competition - A market is said to be perfectly competitive when it has a virtually infinite number of buyers and sellers selling a homogenous product with free entry into and exit from the market. The buyers and sellers have perfect knowledge about the products and markets and there are no selling and transportation costs. The sellers are price takers and they face a perfectly elastic demand curve. The monopolistic firm - A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market. The demand curve facing the firm here is high though not perfectly elastic. It is a downward sloping demand curve. Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm. Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

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1. After the reopening of borders with mainland China following the COVID-19 lockdown, residents living near the border now have the option to shop for food on either side. In Hong Kong, the cost of food is at its listed price, while across the border in mainland China, the price is only half that of Hong Kong's. A recent report indicates a decline in food sales in Hong Kong post-reopening. ** Diagrams need not be to scale; Focus on accurately representing the relevant concepts and relationships rather than the exact proportions. (a) Using a diagram, explain why Hong Kong's food sales might have dropped after the border reopening. Assume that consumers are indifferent between purchasing food in Hong Kong or mainland China, and therefore, their indifference curves have a slope of one like below. Additionally, consider that there are no transport costs and the daily food budget for consumers is identical whether they shop in Hong Kong or mainland China. I 3. 14 (b) In response to the…

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Chapter 10, Problem 2P

To determine

The long-run equilibrium quantity and price in a perfectly competitive and monopolistic firm and their profits have to be derived and compared.

Concept Introduction:

Perfect Competition- A market is said to be perfectly competitive when it has a virtually infinite number of buyers and sellers selling a homogenous product with free entry into and exit from the market. The buyers and sellers have perfect knowledge about the products and markets and there are no selling and transportation costs. The sellers are price takers and they face a perfectly elastic demand curve.

The monopolistic firm- A form of imperfect competition where there are a very large number of buyers and sellers in the market. The products are nearly but not perfectly homogenous, i.e. there is product differentiation. The entry and exit of firms are free. Unlike the perfect competition, the firms have selling costs and imperfect knowledge marks the structure of the market. The market is a deviation from the ideal but not as competitive as the oligopoly or duopoly market. The demand curve facing the firm here is high though not perfectly elastic. It is a downward sloping demand curve.

Marginal Revenue (MR) - The revenue earned by a firm by selling one additional unit of the output is the marginal revenue of the firm.

Marginal Cost (MC) - The cost incurred by a firm in the production of one more unit of output is the marginal cost of the firm.

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