Reference no: EM132401029

Imperfect Competition:

A.) Consider the market for sunglasses. Some firms sell glasses that are polarized, others sell darker or lighter shades and still others sell mirrored glasses. What is the likely market structure and why do you think that? Suppose a firm enters with a new tinted glass. If the firm makes a profit what is likely to happen over the long run? Briefly explain what happens to the firm's profits and why.

B.) In the early days of cell phones (1981-1994) the US government decided that it was best to have only two firms in each market (a special form of oligopoly called a duopoly). Suppose the goal of the government is to maximize consumer surplus

i. Why would the government only allow two firms in the market, couldn't they collude and charge the monopoly price?

ii. Why would allowing an oligopoly further the stated goal? First explain what price maximizes consumer surplus and then explain why that might occur in this case.