1. Assume that the market for Coca-cola in your area is perfectly competitive, with Demand P= 11-0.1Qd and supply P= 1+ 0.1Qs. Each firm that sells Coca-cola is indentical, with Total Cost TC= 1+0.5Q+2Q? Which gives Marginal Cost MC= 0.5+4Q. Currently the market is in equilibrium, and Coca-cola for $6 a unit and $50 units are sold.
a. graph the market
b. Identify the consumer and producer surplus on the graph.
c. Caculate the consumer surplus.
d. Graph the firm. include the marginal revenue, marginal cost, and average total cost curves.
e. how much does each firm produce?
f. how much profit does each firm earn?
2. Now, assume that a company comes to town and buys all of the stores that sell Coca-cola, creating a monopoly on Coca-cola. Assume that the cost curves for the new firm are the same as the perfectly competitive firm. In the new market, Coca-cola sells for 10.75, and the monopolist sells 2.5 units.
a. graph the market
b. Is there dead weight loss in this market? If so, show it on the graph.
c. Calculate the consumer surplus.
d. how much profits does the firm earn?
e. which market structure is better for consumers, perfect competition or monopoly? Explain.