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Calculating the equilibrium parameters

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a. Initially, the peanut market is perfectly competitive, and each firm has minimum average cost equal to 5 (remember, MC = AC at minimum AC). Find the competitive price and quantity.

b. One firm buys all of the other peanut firms, obtaining a monopoly in the peanut industry. The monopoly has constant returns to scale and has a constant marginal cost MC = 5

b1. What is the marginal revenue the monopolist faces?

b2. Find the monopoly price and quantity. Call these Pm and Qm.

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Solution Summary

Solution describes the steps to calculate equilibrium price and quantity in the given case.

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a. In case of perfectly competitive environment, Price, P=MC.
Put ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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