Question Monopolistic Competition Q (a) Explain why the retail clothing industry may be regarded as an example of a monopolistically competitive market. How does this industry differ from one that is perfectly competitive? Assuming identical long-run cost curves, compare graphically (use 2 graphs) the prices and outputs that would result under the long-run monopolistic competition and perfect competition. (4 marks). (b) Is the outcome in a monopolistically competitive market desirable from the standpoint of society as a whole? (1 mark) (c) Illustrate and explain how successful advertising or promotional campaigns can affect firm's profits. (2 marks) Total = 7 marks Question 2: Refer to Chapter 7- Market Failure and Government Policy (a) The table below gives the costs and benefits of an imaginary firm operating under perfect competition whose activities create a certain amount of pollution (It is assumed that the costs of this pollution to society can be accurately measured). Output 1 2 3 4 5 6 7 8 Price per unit ($) 100 100 100 100 100 100 100 100 Marginal (Private) costs to the firm ($) 30 30 35 45 60 78 100 130 Marginal external (pollution) costs ($) 20 22 25 30 40 55 77 110 (i) What is the profit maximizing level of output for this firm? (ii) What is the socially efficient level of output? (iii) Why might the marginal pollution costs increase in the way illustrated in this example? (b) Many economists have argued that a form of 'congestion' tax ought to be imposed on motorists who use their cars on busy roads, to take account of the external costs they impose on road users and pedestrians. Comment on the effectiveness and the relative advantages and disadvantages of the following measures to reduce congestion: (i) Increase the rate of duty on petrol (ii) Setting up tollbooths to charge motorists for using certain stretches of road (iii) Car pooling (iv) Subsidising public transport Question 3: Refer to Chapter 9- Introduction to Macroeconomics (a) What are the latest figures for the unemployment rate, the growth of GDP and the inflation rate? [To find out, visit the Australian Bureau of Statistics (ABS) website at: www.abs.gov.au/] (b) Based on your analysis of the above data, where would you place Australia in the business cycle? Explain your reasoning. (c) The table below gives the national accounts data for a hypothetical economy in 2014. Amount ($m) Gross Private Domestic Investment 955 Government Consumption Expenditure 420 Government Investment Expenditure 295 Household Consumption Expenditure 4120 Taxes 500 Import 675 Exports 580 Savings 100 Using the above table, calculate GDP and the country's Gross National Expenditure (GNE) using the expenditure approach.