Problem 1:
Using relevant examples, discuss the pricing strategies that firms can use to capture value from their customers.
Problem 2:
You are a manager in a perfectly competitive market. The price in the market is $20. Your costs are represented by TC = 8 + 2Q + 0.5 Q2.
(a) What is your firm's added value?
(b) What level of output should you produce in the short run?
(c) Will you make any profits in the short run?
(d) Explain using demand and supply analysis what happens in the long run. What is the long-run market price and your equilibrium quantity of output?
(e) Suppose a change in consumer preferences forces the market price down to $4. How would you respond in the short run? In the long run? What do your answers depend on?
(f) Briefly explain under what conditions the model of perfect competition is an inadequate descriptor of market forces, even if there exist many buyers and many sellers.