Suppose in a market, for the typical firm P = 200 - q - b(n - 1)q and TC = 100q, where P is the price of output q, b is a parameter determining how sensitive a firm’s output price is to the output of its (n - 1) competitors, where n is the number of firms in the market, and where Q = market output = q.
a. Suppose n = 1 and this market was occupied by a single profit-maximizing (e.g. Q = q) Monopolist, how much output would be produced? What price would be charged? How much profit would be earned?
b. Suppose b = 0 and this market was occupied by a very large number of profit-maximizing (e.g. Q = q for the industry) Perfectly Competitive Firms, how much output would be produced? What price would be charged? How much profit would be earned?
c. Refer back to a. and b. and suppose that the industry consists of 3 Monopolistically Competitive firms for which b = 1/2. a. How much output would be produced? What price would be charged? How much profit would be earned? How much output would the industry produce?
d. What explains the differences in the pricing/output decisions across the three market structures considered in parts a.,b., and c.?