1. With reference to the standard modelling of a firm:

(a) Define and explain the concept and representation of short run marginal cost (SRMC), average variable cost (AVC) and long run average cost (LRAC).

(b) Show how and why the minimum of the SRAC curve is not usually on the LRAC curve

(c) Distinguish constant, decreasing and increasing returns to scale, and give real examples of industries which exhibit each of these returns to scale.

2. Briefly distinguish between monopoly, perfect competition, monopolistic competition, non-collusive oligopoly, collusion and a contestable market. Which market structure is best for:

(a) consumers

(b) businesses

(c) society?

Provide suitable empirical examples.

3. Using a simple game, show how it is possible for a firm to employ a strategy that deters entry. Find and discuss an example of a firm that employs the strategy you model. Discuss why such strategies may not always work in practice.


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