Question 1.
(a) A monopolist uses price discrimination to increase their profits. Where does this profit come from? Use a graph to explain your answer.
(b) How is monopolistically competitive firm different from a perfectly competitive firm in the long-run? Graph this.
(c) What characteristic of monopolistic competition drives this result?
Question 2. What does it mean to be a Nash equilibrium?
Question 3. What characteristic of market structure allows for long-run profits? Explain.
Question 4. All else equal, what effect would the recent increasing gas price have on our economy? Graph this.
Question 5. Why is it more difficult to predict the direction of stock prices after new information in released than it is to predict bond prices or exchange rates?