[MT445 | Managerial Economics] Unit 5 Assignment Student Name: Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed. 1. How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain. 2. A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140. Output FC VC TC TR Profit/Loss 0 $90 $ 0 ___ ___ ___ 1 90 90 ___ ___ ___ 2 90 170 ___ ___ ___ 3 90 290 ___ ___ ___ 4 90 430 ___ ___ ___ 5 90 590 ___ ___ ___ 6 90 770 ___ ___ ___ a. Complete the table. b. What level of output should the firm produce to maximize profits? c. Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run? 3. How does the profit maximization condition for a monopoly differ from that for a perfectly competitive firm? How does this difference impact efficiency under each market structure? 4. The following table provides market share information about the soft-drink industry. Company Market Share Coca-Cola 37% Pepsi-Co 35 Cadbury Schweppers 17 Other 11 a. Do you think the Department of Justice and the Federal Trade Commission would approve a merger between any two of the first three companies listed? Explain. b. Do you think this market has barriers to entry? If so, what might they be? Directions for Submitting your Assignment Complete your Assignment in this Microsoft Word® document and save it as Username-MT445Assignment-Unit#.doc (Example:TAllen-MT445Assignment-Unit5.doc). Submit your file by selecting the Unit 5: Assignment Dropbox by the end of Unit 5. Unit 5 Assignment Content and Analysis Points Possible Points Earned Problem #1 How does the demand curve faced by a perfectly competitive firm differ from the market demand curve in a perfectly competitive market? Explain. 8 Problem #2 A perfectly competitive firm has the following fixed and variable costs in the short run. The market price for the firm’s product is $140. Complete the table (a) 7 What level of output should the firm produce to maximize profits? (b) 4 Assume this firm is making a loss when it produces its 7th unit of output. What should the firm do in the short-run? (c) 4 Problem #3 How does the profit maximization condition for a monopoly differ from that for a perfectly competitive firm? How does this difference impact efficiency under each market structure? 8 Problem #4 The following table provides market share information about the soft-drink industry. (a-b) 8 Writing Style, Grammar, and APA Format. 6 Total 45 WELCOME TO SEMINAR 5 February 4, Wed. 10-11 pm ET MT445-02 MANAGERIAL ECONOMICS INSTRU.

1. [MT445 | Managerial Economics]
Unit 5 Assignment
Student Name:
Please answer the following questions. Submit as a Microsoft
Word® document to the Dropbox when completed.
1. How does the demand curve faced by a perfectly competitive
firm differ from the market demand curve in a perfectly
competitive market? Explain.
2. A perfectly competitive firm has the following fixed and
variable costs in the short run. The market price for the firm’s
product is $140.
Output
FC
VC
TC
TR
Profit/Loss
0
$90
$ 0
___
___
___

2. 1
90
90
___
___
___
2
90
170
___
___
___
3
90
290
___
___
___

3. 4
90
430
___
___
___
5
90
590
___
___
___
6
90
770
___
___
___
a.
Complete the table.

4. b.
What level of output should the firm produce to maximize
profits?
c.
Assume this firm is making a loss when it produces its 7th unit
of output. What should the firm do in the short-run?
3. How does the profit maximization condition for a monopoly
differ from that for a perfectly competitive firm? How does this
difference impact efficiency under each market structure?
4. The following table provides market share information about
the soft-drink industry.
Company
Market Share
Coca-Cola
37%
Pepsi-Co
35
Cadbury Schweppers
17
Other
11
a. Do you think the Department of Justice and the Federal Trade
Commission would approve a merger between any two of the
first three companies listed? Explain.
b. Do you think this market has barriers to entry? If so, what
might they be?
Directions for Submitting your Assignment

5. Complete your Assignment in this Microsoft Word® document
and save it as Username-MT445Assignment-Unit#.doc
(Example:TAllen-MT445Assignment-Unit5.doc). Submit your
file by selecting the Unit 5: Assignment Dropbox by the end of
Unit 5.
Unit 5 Assignment
Content and Analysis
Points Possible
Points Earned
Problem #1
How does the demand curve faced by a perfectly competitive
firm differ from the market demand curve in a perfectly
competitive market? Explain.
8
Problem #2
A perfectly competitive firm has the following fixed and
variable costs in the short run. The market price for the firm’s
product is $140. Complete the table (a)
7
What level of output should the firm produce to maximize
profits? (b)
4
Assume this firm is making a loss when it produces its 7th unit
of output. What should the firm do in the short-run? (c)
4
Problem #3
How does the profit maximization condition for a monopoly
differ from that for a perfectly competitive firm? How does this
difference impact efficiency under each market structure?

6. 8
Problem #4
The following table provides market share information about the
soft-drink industry. (a-b)
8
Writing Style, Grammar, and APA Format.
6
Total
45
WELCOME TO
SEMINAR 5
February 4, Wed. 10-11 pm ET
MT445-02
MANAGERIAL ECONOMICS
INSTRUCTOR: PAUL CHOI, PH.D.

7. 1
LIVE SEMINARS
(Wednesday 10-11 PM ET)
Live Seminar Schedule:
• Live Seminar 1: January 7 (Wednesday 10-11 pm ET)
• Live Seminar 2: January 14 (Wednesday 10-11 pm ET)
• Live Seminar 3: January 21 (Wednesday 10-11 pm ET)
• Live Seminar 4: January 28 (Wednesday 10-11 pm ET)
• Live Seminar 5: February 4 (Wednesday 10-11 pm ET)
• Live Seminar 6: February 11 (Wednesday 10-11 pm ET)
• Live Seminar 7: February 18 (Wednesday 10-11 pm ET)
• Live Seminar 8: February 25 (Wednesday 10-11 pm ET)
• Live Seminar 9: March 4 (Wednesday 10-11 pm ET)
• Live Seminar 10: March 11 (Wednesday 10-11 pm ET)
• It is strongly suggested that you attend the graded seminar at
the regularly scheduled time. If you are unable to attend the
seminar, you can complete the following assignment.
2
UNIT 4 READING
Chapter 12 discusses perfectly competitive markets and how
firms maximize profits in perfectly competitive markets.
Chapter 12 illustrates how to use graphs to show a firm’s profit
or loss, and how to decide when to produce and when to shut
down in the short run. Chapter 12 also covers entry and exits in
perfectly competitive markets and the efficiency of perfectly

8. competitive markets.
3
UNIT 4 READING
Chapter 15 discusses monopolies, how prices and outputs are
determined, and how monopolies affect economic efficiency.
Chapter 15 also discusses government policies toward
monopolies.
4
READING: CHAPTER 12
Perfectly Competitive Markets
Perfectly Competitive Market: A market that meets the
conditions of (1) many buyers and sellers, (2) all firms selling
identical products, and (3) no barriers to new firms entering the
market.

9. 5
READING: CHAPTER 12
Perfectly Competitive Markets
A Perfectly Competitive Firm Cannot Affect the Market Price:
Price Taker: A buyer or seller that is unable to affect the market
price.
6
READING: CHAPTER 12
How a Firm Maximizes Profit in a Perfectly Competitive Market
Profit: TR – TC
Revenue for a Firm in a Perfectly Competitive Market:
Average Revenue (AR): Total revenue divided by the quantity
of the product sold.
Marginal Revenue (MR): Change in total revenue from selling
one more unit of a product.
7
READING: CHAPTER 12
How a Firm Maximizes Profit in a Perfectly Competitive Market

10. Determining the Profit-Maximizing Level of Output:
-The profit-maximizing level of output is where the difference
between total revenue and total cost is the greatest.
-The profit-maximizing level of output is also where marginal
revenue equals marginal cost, or MR = MC.
8
READING: CHAPTER 12
Illustrating When a Firm Is Breaking Even or Operating at a
Loss
1. P > ATC, which means the firm makes a profit.
2. P =ATC, which means the firm breaks even (its total cost
equals its total revenue).
3. P < ATC, which means the firm experiences losses.
9
READING: CHAPTER 12
Deciding Whether to Produce or to Shut Down in the Short Run
In the short run, a firm suffering losses has two choices:
1. Continue to produce
2. Stop production by shutting down temporarily.
Sunk Cost: A sunk cost that has already been paid and that

11. cannot be recovered.
10
READING: CHAPTER 12
Deciding Whether to Produce or to Shut Down in the Short Run
The Supply Curve of a Firm in the Short Run
Total Revenue < Total Variable Cost
If we divide both sides by Q, we have the result the firm will
shut down if:
P < AVC
Shutdown Point: The minimum point on a firm’s average
variable cost curve; if the price falls below this point, the firm
shuts down production in the short-run.
11
READING: CHAPTER 12
Economic Profit and the Entry or Exit Decision
Economic Losses Lead to Exit of Firms
Economic Loss: The situation in which a firm’s total revenue is
less than its total cost, including all implicit costs.
Long-run Competitive Equilibrium: The situation in which the
entry and exit of firms has resulted in the typical firm breaking

12. even.
12
READING: CHAPTER 12
The Long-Run Supply Curve in a Perfectly Competitive Market
Long-run Supply Curve: A curve that shows the relationship in
the long-run between market price and the quantity supplied.
13
READING: CHAPTER 12
The Long-Run Supply Curve in a Perfectly Competitive Market
Increasing-Cost and Decreasing-Cost Industries:
Industries with upward-sloping long run supply curves are
called increasing-cost industries
Industries with downward sloping long-run supply curves are
called decreasing-cost industries.

13. 14
READING: CHAPTER 12
Perfect Competition and Efficiency
Productive Efficiency:
Productive Efficiency: The situation in which a good or service
is produced at the lowest possible cost.
15
READING: CHAPTER 12
Perfect Competition and Efficiency
Allocative Efficiency:
Firms will supply all those goods that provide consumers with a
marginal benefit at least as great as the marginal cost of
producing them.
1 The price of a good represents the marginal benefit consumers
receive from consuming the last unit of the good sold.
2 Perfectly competitive firms produce up to the point where the
price of the good equals the marginal cost of producing the last
unit.
3 Therefore, firms produce up to the point where the last unit
provides a marginal benefit to consumers equal to the marginal
cost of producing it.

14. 16
READING: CHAPTER 12
Perfect Competition and Efficiency
Allocative Efficiency:
Allocative Efficiency: A state of the economy in which
production represents consumer preferences; in particular, every
good or service is produced up to the point where the last unit
provides a marginal benefit to consumers equal to the marginal
cost of producing it.
17
READING: CHAPTER 15
Is Any Firm Ever Really a Monopoly?
Monopoly: A firm that is the only seller of a good or service
that does not have a close substitute.
18
READING: CHAPTER 15
Where Do Monopolies Come From?

15. To have a monopoly, barriers to entering the market must be so
high that no other firms can enter.
Barriers to entry may be high enough to keep out competing
firms for four main reasons:
19
READING: CHAPTER 15
Where Do Monopolies Come From?
1 Government blocks the entry of more than one firm into a
market.
2 One firm has control of a key resource necessary to produce a
good.
3 There are important network externalities in supplying the
good or service.
4 Economies of scale are so large that one firm has a natural
monopoly.
20
READING: CHAPTER 15
Where Do Monopolies Come From?
Entry Blocked by Government Action
In the United States, government blocks entry in two main

16. ways:
1 By granting a patent or copyright to an individual or firm,
giving it the exclusive right to produce a product.
2 By granting a firm a public franchise, making it the exclusive
legal provider of a good or service.
21
READING: CHAPTER 15
Where Do Monopolies Come From?
Entry Blocked by Government Action
Patent: The exclusive right to a product for a period of 20 years
from the date the product is invented.
Copyright: A government-granted exclusive right to produce
and sell a creation.
Public franchise: A designation by the government that a firm is
the only legal provider of a good or service.
22
READING: CHAPTER 15
Where Do Monopolies Come From?
Control of a Key Resource
Another way for a firm to become a monopoly by controlling a

17. key resource.
Network Externalities
Network Externalities: The situation where the usefulness of a
product increases with the number of consumers who use it.
23
READING: CHAPTER 15
Where Do Monopolies Come From?
Natural Monopoly
Natural Monopoly: A situation in which economies of scale are
so large that one firm can supply the entire market at a lower
average total cost than can two or more firms.
24
READING: CHAPTER 15
Does Monopoly Reduce Economic Efficiency?
Measuring the Efficiency Losses from Monopoly
We can summarize the effects of monopoly as follows:
1. Monopoly causes a reduction in consumer surplus.
2. Monopoly causes an increase in producer surplus.
3. Monopoly causes a deadweight loss, which represents a
reduction in economic efficiency.

18. 25
READING: CHAPTER 15
Does Monopoly Reduce Economic Efficiency?
How Large Are the Efficiency Losses Due to Monopoly?
Market Power: The ability of a firm to charge a price greater
than marginal cost.
26
READING: CHAPTER 15
Does Monopoly Reduce Economic Efficiency?
Market Power and Technological Change
The introduction of new products requires firms to spend funds
on research and development.
Because firms with market power are more likely to earn
economic profits than are perfectly competitive firms, they are
also more likely to carry out research and development and
introduce new products.

19. 27
READING: CHAPTER 15
Government Policy toward Monopoly
Collusion: An agreement among firms to charge the same price
or otherwise not to compete.
Antitrust Laws and Antitrust Enforcement
Antitrust Laws: Laws aimed at eliminating collusion and
promoting competition among firms.
28
READING: CHAPTER 15
Government Policy toward Monopoly
Important U.S. Antitrust Laws
LAW DATE PURPOSE _______
Sherman Act 1890 Prohibited “restraint of trade,”
including price fixing and
collusion.
Also outlawed monopolization.
Clayton Act 1914 Prohibited firms from buying
stock in competitors and from
having directors serve on the
boards of competing firms.
Federal Trade 1914 Established the Federal Trade
Commission Act Commission (FTC) to help
administer antitrust laws.

20. Robinson-Patman 1936 Prohibited charging buyers
Act different prices if the result
would reduce competition.
Cellar-Kefauver 1950 Toughened restrictions on
mergers
Act by prohibiting any mergers that
would reduce competition.
29
READING: CHAPTER 15
Government Policy toward Monopoly
Mergers: The Trade-off between Market Power and Efficiency
Horizontal Merger: A merger between firms in the same
industry.
Vertical Merger: A merger between firms at different stages of
production of a good.
30
READING: CHAPTER 15
Government Policy toward Monopoly

21. The Department of Justice and Federal Trade Commission
Merger Guidelines
The guidelines have three main parts:
1. Market Definition
2. Measure of Concentration
3. Merger Standards
31
READING: CHAPTER 15
Government Policy toward Monopoly
Market Definition
A market consists of all firms making products that consumers
view as close substitutes.
32
READING: CHAPTER 15
Government Policy toward Monopoly
The Department of Justice and Federal Trade Commission
Merger Guidelines
Measure of Concentration
• 1 firm, with 100% market share (a monopoly): HHI = 1002 =
10,000

22. • 2 firms, each with a 50% market share: HHI = 502 + 502 =
5,000
• 4 firms, with market shares of 30%, 30%, 20%, and 20%: HHI
= 302 + 302 + 202 + 202 = 2,600
• 10 firms, each with market shares of 10%: HHI = 10 (102) =
1,000
33
READING: CHAPTER 15
Government Policy toward Monopoly
The Department of Justice and Federal Trade Commission
Merger Guidelines
Merger Standards
• Post-merger HHI below 1,000: These markets are not
concentrated, so mergers in them are not challenged.
• Post-merger HHI between 1,000 and 1,800: These markets are
moderately concentrated. Mergers that raise the HHI by less
than 100 probably will not be challenged. Mergers that raise the
HHI by more than 100 may be challenged.
• Post-merger HHI above 1,800: These markets are highly
concentrated. Mergers that increase the HHI by less than 50
points will not be challenged. Mergers that increase the HHI by
50 to 100 points may be challenged. Mergers that increase the
HHI by more than 100 points will be challenged.

23. 34
UNIT 5 DISCUSSION
Topic 1: Perfectly Competitive Industry
Describe an industry that would meet the conditions of a
perfectly competitive industry:
1. There are many buyers and sellers so neither side of the
market has market power.
2. The product provided to the market is identical across
suppliers.
3. There are no barriers to entry.
How do individual firms in a perfectly competitive industry
respond to an increase in the market demand for the product?
Would advertising by individual firms in this type of market
provide any benefits?
35
UNIT 5 DISCUSSION
Topic 2: Monopolies
In order to maximize profits, monopolies produce where:
MARGINAL REVENUE = MARGINAL COST < MARKET
PRICE. Contrast this to the profit maximization condition for
perfectly competitive markets and explain how these differences
contribute to deadweight loss in a monopoly market. Can you
think of reasons why a monopoly might decide on their own to
increase production and lower prices to earn an acceptable
profit rather than maximize profits?

24. 36
UNIT 5 ASSIGNMENT
Instructions Summary: Please Read Unit 5 Assignment
Instructions
• Please answer the following questions located in the template
document. Submit the file as a Microsoft Word ® document to
the Dropbox when completed.
37
SEMINAR
Read About Graded Seminars
Attending seminars is important to your academic success. They
(seminars) will allow you to review the important concepts that
are presented in each unit, discuss work issues in your lives that
pertain to these concepts, ask your instructor questions and
allow you to come together in real time with your fellow
classmates.
There will be a seminar in units 1 through 10 in this course.
You must either attend the seminar or complete the Alternative
Seminar Assignment in order to obtain the points for this part of
class.

25. 38
UNIT 5 SEMINAR
Unit 5 Alternative Assignment:
• It is strongly suggested that you attend the graded seminar at
the regularly scheduled time. If you are unable to attend the
seminar, you must complete the following alternative
assignment to earn points for this part of the class.
View this week’s archived Seminar and write a 1 page paper,
double spaced that summarizes the Seminar and what you
learned.
Once completed, submit your alternative assignment to the
Seminar Dropbox.
39