Will price be lower or higher

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Q1. Imagine a simple economy with only two people, Leroy and Percy. If the social welfare function is W=UL + UP, and the utility possibilities frontier is UPF=UL+2UP, what will be the societal optimum?

Q2. Even if firms in a monopolistically competitive market collude successfully as well as fix cost, economic profit will still be competed away if there is unobstructed entry. Clarify. Will price be lower or higher as such an agreement in long-run equilibrium than would be the case if firms didn't collude? Explain.

Reference no: EM137926

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