What is the effect on a market of the assumption of perfect information?



Economics 201    Microeconomics  Assignment 3       Fall 2019


  1. Perfect competition.

a)      What is the effect on a market of the assumption of perfect information?  What is your opinion on how realistic this assumption is? Explain your answer. [3]

b)      In perfect competition, what is the only form of profit that a firm can make in the long run? Explain why this is the case. Use graphs to support your answer. [4]

c)      i)    Based on this article, briefly assess this retail market for competitiveness.  How well or badly does it fit the assumptions of perfect competition?




ii)   How might what is happening in high street retail markets be reflected in the model that you described in part b)? [2]

d)       What is normal profit and why isn’t it the same as break even? [2]



  1. Monopoly

a)      How is price determined in monopoly? Why is it greater than the MR? Use either your own numerical example or prove it mathematically. [3]

b)      Explain why market that has a natural monopoly will have lower costs than the same market with more than one firm. Does this mean that natural monopolies are efficient? Use a graph to support your explanation. [4]

c)      Explain perfect price discrimination and why it is economically efficient.  Why is it becoming more realistic and not just a textbook theory? Use a graph to support your answer.  [4]

d)      Analysis of monopoly shows (as in part b above), that it is economically inefficient.  Explain why this might not be true of monopolies like Amazon and Google.  Explain why, in your opinion, these monopolies should or should not be regulated.  [4]


Total 29

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