SOLUTION: Microeconomics Assignment 4 | My Assignment Tutor

Microeconomics Assignment 4 Fall 2020 OligopolyGo to this website: https://www.statista.com/statistics/481019/leading-grocery-retailers-by-market-share-canada/ Use this to calculate the CR4 and explain what this result tells us about the market. [2] There are lots of restaurants in this street in Nantes, France. Explain why this situation sub optimal in terms of location for consumers What would have been a better distribution of restaurants? [1] Given your answer to a), explain the process that would lead 2 restaurants to end up next to each other if location is the only variable. Use a diagram to support your answer. [3]Explain why this is a stable situation (a Nash Equilibrium).In the theory (Hotelling’s Model of Spatial Competition) we assume identical products and no zoning laws. Explain how it would affect the model if we dropped these assumptions? [3] Two competing hotels have to decide whether or not offer a free dinner to guests during spring break. If neither firm offers a free meal, profits will be $10,000 each. If only one offers a free dinner, it will make $11,500, while the other firm will only make $8,000. If both firms offer a free dinner, there will be no gain in market share and the higher costs will reduce profits to $9,000 each.Put this information into a payoff matrix. [1] What will the outcome be if this game is played once? Explain the process. [2]Why is it more likely that these two firms might make an agreement no to compete, compared to a situation when there are lots of firms? [2] d) In a repeated game with a tit for tat strategy, what is the problem of having a finite number of games? How do we solve this problem in theory and in practice? [2] e) Using your matrix from part c) i), explain what the outcome would be if the game were played every spring for many years. Do the firms have to make an agreement to reach this outcome? Explain. [2] . 2. Markets for factors of production Why does a firm need to know the marginal product of labour? How does a firm then calculate the MRP of labour? What does this tell us and why does this give us a negative slope for the demand curve for labour? [4] Why do some service industries have inelastic demand for labour? How might this change in future? Explain. [2] Why don’t unions for low skilled workers try to control the supply of labour? What can they do to increase demand for labour? [2] 3. Externalities a) There are two holiday resorts close to each other, one that sells holidays that are quiet and restful; the other that sells holidays for people who like wild parties. Why might it be rational for the quiet resort to pay the noisy resortto reduce its noise level? What conditions must be in place for this to be resolved without legal action? What is the efficient payment? Use a graph to support your answer. [4] b) Give an example of a positive externality. Explain why it is an externality and why the government may need to be involved in this situation. Use a graph to support your answer. [3] Total 34