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Gains to society and the marginal cost

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1) In the argument for why perfect competition is allocative efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?

2) Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10% less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

3) If a monopoly firm is earning profits, how much would you expect these profits to be diminished by entry in the long run?

Reference no: EM131584699

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