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  1. Question 1
  2. Question 2
  3. Question 3
  4. Question 4

There are many restaurants in the city providing significantly differentiated menus and are currently generating profits.

Depict in a diagram showing the profit maximising equilibrium for such a typical restaurant. Will this typical restaurant maintain profits in the long-run?

Depict this long run equilibrium for our typical restaurant and explain how this would be different to that of a restaurant under perfect competition.

Night clubs in town often change customer target group and redecorate premises. Some are busy for some time while most remain half empty in an ever lasting competitive rotation. Why do they engage in what seems to be such a waste of resources and higher costs? On the other hand, kiosks hardly seem to change over the years, why do they not behave like night clubs?

[...] If the cartel broke down, our individual oligopolist would maximise profits where MC=MR, thus P(D)=90 and Q=40. As a member of the cartel, the individual oligopolist's total revenues are 110*30=3300. As a free rider (assuming other oligopolists maintain the cartel) his total revenues are 110*40=4400. Under oligopoly without a cartel, his total revenues would be 90*40=3600. So his best option to maximize revenues would be to act as a free ride, assuming the others would keep the cartel rather than disbanding it. And of course the makes him a weak link for the cartel's unity. [...]

[...] There are 5 green grocers in the summer village who agreed to fix prices for basic grocery. Explain whether the agreement will break for each of the following (in some cases you should also consider alternative scenarios) and what new market types might arise: a. A decline in demand as fewer people take holidays b. One of them made an exclusive agreement with a supplier and buys at cheaper prices than the rest c. A fast bus service to the nearest town allows access to a large number of green grocers d. [...]

[...] The oligopoly will turn to perfect competition, the demand curve for each of the five firms will shift to the left, prices will lower and the cartel will be disbanded. If the five firms start offering product and price differentiation, the market will turn to monopolistic competition and the cartel agreement between them will break. The diagrams illustrate an industry (on the left) under oligopoly consisting of 4 firms and a particular oligopolist in that industry (on the right). Assuming that firms form a cartel, what (price, output) combination will the cartel choose to maximise its collective profits? [...]

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