What is the effect on a market of the assumption of perfect information?
economics
Description
Economics 201 Microeconomics Assignment 3 Fall
2019
- 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?
https://www.theguardian.com/business/2019/sep/11/retailers-call-for-action-as-high-street-store-closures-soar
https://www.retail-insight-network.com/features/uk-online-shopping-growth/
[3]
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]
- 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
