MICRO-ECONOMICS questions?

Question

What is the relationship between MC (marginal cost) and ATC (average total cost)?

What category would each of the following fit into? (pure competition, monopoly, oligopoly, pure monopoly) and why?

a) gasoline retailing

b) a hair stylist

c) transit service

d) grain farmer

e) pepsi company

Your help is much appreciated. Thank you in advance!

Answer 1

c is pure monopoly if by pure you mean natural.

Answer 2

When MC is below ATC, ATC is falling.  When MC is above ATC, ATC is rising.  When MC intersects ATC, ATC is at its miminum.

a) pure competition, since gas from a locally owned gas station is no different from that of an Exxon station, so consumers are largely indifferent as to which gas station they buy from.  There is also some degree of monopolistic competition due to location.  This is reflected in the fact that gas stations barely earn any money on selling gas; most of their profit comes from the items in the convenience store.

b) monopolistic competition.  It is relatively easy to enter the market, and there are many hair stylists.  But hair styling involves a lot of creativity, and each stylist is different, so there is product differentiation.  It's not monopoly or oligopoly since there are too many producers for that, and the products are different and people tend to be loyal to their hair stylist, so it must be monopolistic competition.

c) monopoly.  It's inefficient for more than one transit service to operate in the same area, because buying buses, trains, etc costs a lot of money.  Because there is only one producer, it must be a monopoly.  Another hint that it's a monopoly is that transit services tend to be government operated.

d) perfect competition.  There are many grain farmers, and there is no difference between grain from one farm and grain from another.  Because there are many sellers and undifferentiated products, it must be perfect competition.

e) oligopoly.  There are a few producers in the soft drink industry that control nearly all of the market.  This means it's an oligopoly.

Answer 3

Hmm.. passing your assignment to others ha.. I'll just give you some hints.

Average total cost is the cost of the product produce in a certain unit and the marginal cost is the cost of the product in excess of your fixed unit of product.

try to log on to this site: http://hspm.sph.sc.edu/COURSES/ECON/Cost...