UNIVERSITY OF GHANA BUSINESS SCHOOL
DEPARTMENT OF FINANCE
UGBS 201: MICROECONOMICS AND BUSINESS
TUTORIAL SET SIX
1.
The table below shows the total revenue of the 50 banks in the banking industry.
Firm Total revenue (dollars)
EBL 450
BBL 325
SCB 250
FBL 200
Next 16 banks (each) 50
Next 30 banks (each) 20
a. Calculate the four-firm concentration ratio and the Herfindahl Hirschman Index. What is the market structure of the banking industry?
b. What would the market structure of the banking industry be if each firm operated in a different city and the cities were spread across the nation?
c. What additional information would you need about the banking industry to be sure that it is an example of monopolistic competition?
d. Suppose that a new banking technology makes it easier for anyone to enter the banking market. How might the market structure change?
2.
Kwame is an entrepreneur who has established a Web site at which people can design and buy awesome sunglasses. Kwame pays GH¢4,000 a month for his Web server and internet connection. The sunglasses that his customers design are made to order by another firm, and he pays this firm $50 a pair. His marginal cost is $50. Kwame has no other costs.

3.
The table shows the demand schedule for Kwame’s sunglasses.
Price (dollars per pair) Quantity (pairs per month)
250 0
200 50
150 100
100 150
50 200
0 250 a. Calculate Kwame profit-maximizing output, price, and economic profit. b. Do you expect other firms to enter the market and compete with Kwame? c. Based on your answer above, what do you expect in the long run? What happens to Kwame’s economic profit in the long run?
3. Doreen bakes delicious cookies. Her total fixed cost is $40 a day, and her average variable cost is $1 a bag. Few people know about Doreen’s cookies, and she maximizes her profit by selling 10 bags a day for $5 a bag. Doreen thinks that if she spends $50 a day on advertising, she will sell 25 bags a day for $5 a bag. a. If Doreen’s belief about the effect of advertising is correct, can she increase her profit by advertising? b. If Doreen advertises, will her average total cost increase or decrease at the quantity produced?
4.
Show graphically an example of a monopolist competition firm that is producing the profit maximising output and making economic profit.
5.
Differentiate between monopolist competition and perfect competition.
OPHELIA AMO
(TEACHING ASSISTANT) BEST WISHES IN YOUR EXAMS.