QUE STION 5 Consider the market for fast food pizzas to be efrectively perfectly

Question

QUE STION 5 Consider the market for fast food pizzas to be efrectively perfectly competitive. In the early 2000's most companies had the same cost structures. However, Domino's Pizza has since invested significantly in its information technolog systems. One of the outcomes of this today has been to alow it to sell pizzas for less than its competitors. Given Domino's size it has been able to greatly increase supply of pizzas to the market Answer the following questions a. Prior to Dominos increasing the market supply of pizzas, would most pizza companies have been earning an economic profit? Type Y for Yes or N for No. b. If the market price of pizzas is $9.75 and Domino's has an average total cost (which includes opportunity cost) of $6 per pizza, then what would be the economic proft eamed by Dominos per pizza? Answer to two decimal places. A different pizza company. Solitaire Pizza is currently expenencing economic losses of $500 per week, and will be required to pay an additional $1,000 rent per week in the future it operates in the same market as Dominos and is unable to reduce its current cost structure any further. Should it exit or remain in the long run? Type X for Exit or R t or Remain QUESTION 6 Daisy's lemonade store is a monopoly in her neighbourhood. On a hot summer day, her small stall in front of her house is ined with customers, eager to quench their thirst with her delicious homemade lemonade 1. Daisy is a price taker 2. Daisy has a downward sloping demand curve 3. Daisy has a horizontal demand curve Which of the above statements are true Only 1 is true. O Only 2 is true. Both 1 and 2 are true Both 2 and 3 are true All three are true

Explanation / Answer

Question 5

Economic profit =$9.75 - $6=$3.75 per pizza.

3. Exit. In the long run, a competitive firm is in equilibrium when MR=MC=AC. If firms suffer economic losses in the long run, they if exit the industry.

Question 6

Only 2 is true. A monopolist faces downward sloping demand curve, so Daisy can sell more if she reduces the price.

She, as a monopolist, is a price maker not a price taker.

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