1. Discuss the main assumptions of a perfectly competitive market.
2. Describe the feature of monopolistic competition that resembles both perfect competition and a monopolistic market structure.
3. What is the difference between real and fancied differentiation? Explain using practical examples.
4. What are the similarities and differences between oligopoly and monopolistically competitive market structures?
5. A firm operates in a perfectly competitive market. The market price of its product is 4 birr and the total cost function is given by [tex]\( TC = -\frac{1}{3} Q^3 - 5 Q^2 + 20 Q + 50 \)[/tex], where [tex]\( TC \)[/tex] is the total cost and [tex]\( Q \)[/tex] is the level of output.
a) What level of output should the firm produce to maximize its profit?
b) Determine the level of profit at equilibrium.
c) What minimum price is required by the firm to stay in the market?
6. A person has \[tex]$100 to spend on two goods \( X \) and \( Y \) whose respective prices are \$[/tex]3 and \[tex]$5.
A. Draw the budget line.
B. What happens to the original budget line if the budget falls by 25%?
C. What happens to the original budget line if the price of \( X \) doubles?
D. What happens to the original budget line if the price of \( Y \) falls to \$[/tex]4?
7. A rational consumer spends all of her income on two goods: Apple and Banana. Suppose the last dollar spent on Apple increased her total utility from 60 utils to 68 utils and the last dollar spent on Banana increased her total utility from 25 utils to 29 utils. If the price of a unit of Apple is 2 Birr, what is the price of a unit of Banana at equilibrium?
8. Given the utility function [tex]\( U = X^{0.5} Y^{0.5} \)[/tex], where [tex]\( P_X = 12 \)[/tex] Birr, [tex]\( P_Y = 4 \)[/tex] Birr, and the income of the consumer is [tex]\( M = 240 \)[/tex] Birr:
A. Find the utility-maximizing combinations of [tex]\( X \)[/tex] and [tex]\( Y \)[/tex].
B. Calculate the marginal rate of substitution of [tex]\( X \)[/tex] for [tex]\( Y \)[/tex] [tex]\(( MRS_{x,y} )\)[/tex] at equilibrium and interpret.
