ECON 2510 Name_____________
Exam #2 April 20, 2000

1. What does RSVP mean? ________
2. Spiders have ___ legs.
3. The capitol of Nevada is ______________.

Answer four (4) of the following six (6) questions.


1. Show the cost curves for a purely competitive firm in equilibrium. Explain why this is equilibrium and why it will be maintained in the long run.



2. Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures? Why can price be substituted for MR in the MR=MC rule when an industry is purely competitive?



3. Assume a pure monopolist and a purely competitive firm have the same unit costs. Contrast the two with respect to (a) price, (b) output, (c) profits, (d) allocation of resources, and (e) impact on the distribution of income.



4. What is a monopoly? What is a natural monopoly? Would public policy be called for? How would it be different in each case? What would the problems be in the case of a natural monopoly? What choices/options might these be? Explain, illustrate with graphs as appropriate.



5. What is an oligopoly? What are the important characteristics of this type of market? What is important about the demand faced by an oligopolist? Why do prices tend to be sticky?




6. Why do firms spend on R&D? What factors should they consider in deciding how much to spend on R&D? How should the optimal level of R&D be determined? Why are these decisions hard to make? What are the variables to be considered and what makes them difficult to specify?