8 Extra Exercises with Answers

Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD Demand :P =1000-10Q Total Revenue : TR=1000Q-10Q2 Marginal Revenue: MR=1000-20Q Marginal Cost: MC=100+10Q Where Q indicates the number of copies sold and P is the price in Ectenian dollasrs. a. Find the price and quantity that maximize the company's profit  b. Find the price and quantity that would maximize social welfare c. Calculate the deadweight loss from monpoly. d. Suppose in addition to the costs above. the director of the film has to be paid. The company is considering four options i. a flat fee of 2000 Ectenian dollars ii. 50 percent of the profits. iii. 150 Ectenian dollars per unit sold iv. 50 percent of the revenue. For each option, calculate the profit-maximizing price and quantity. Which if any of these compensation schemes would alter the deadweight loss from monopoly. Explain.

Shell has over 13,000 gas stations in the United States. In addition to gasoline, the gas stations also sell convenience items, such as snacks, non-alcoholic beverages, wine, beer, and hot food. Suppose you work for a gas station and your boss asks you to develop a pricing strategy for bottled local wine. The demand function is ? = 100 – 4?, where ? is the monthly quantity demanded of the bottled wine and ? is the price of the bottled wine. The marginal cost per bottle of wine is $5. Complete the following tasks: 1) (Calculating) In the worksheet “Q2 Calculations” of the provided Excel file, enter formulas in columns B-D to calculate Q (quantity demanded), MC (marginal cost), and MR (marginal revenue). Please round your results to one decimal place. Note that the inverse demand function is ? = 25 − 0.25? and that the MR function can be derived from the inverse demand function using the formula introduced in Module 5. You may find it helpful to review the Excel file for Chapter 11.

According to Mr. Wizard, “The long-run market effects of public housing are tiny. Starting with an equilibrium with a private supply of 120 dwellings, the building of 60 public housing dwellings will increase the equilibrium quantity of housing by only 10 dwellings, Use a D&S model to illustrate Mr. Wizard’s economic logic.

Suppose there are only two fishermen, Maria and Ruby, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of building each additional lighthouse is $100. Maria’s demand curve for lighthouses is given by P=170-2Q, and Ruby’s by P=150-Q, where Q is the number of lighthouses. Explain why we might not expect to find the efficient number of lighthouses along this coast. Draw the demand curve for Maria and Ruby individually and the market demand for lighthouses. What is the efficient number of lighthouses?

Promoters of a major college basketball tournament estimate that the demand for tickets by adults is QA = 5,000 - 10P and the demand for tickets by students is QS = 10,000 - 100P. The marginal cost and average total cost of seating an additional spectator is constant, MC = $10, The promoters want to segment the market and charge adults and students different prices. What is the profit maximizing ticket price for students?

Hubert owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on his property, making a large crater. The event attracts scientists and tourists, and Hubert decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MR) curves for the two markets. Hubert’s marginal cost of providing admission tickets is zero      Suppose that at first, Hubert charges the same price of $8 per admission in both markets so that the total number of admissions demanded is_______tickets.   Suppose now that Hubert decides to charge a different price in each market. To maximize revenue, Hubert should charge_________per admission in Market A and________per admission in Market B. At these prices, he will sell a total quantity of __________admission tickets per day. Complete the following table by calculating…

Suppose in a small town called Utopia live 200 children and 300 adults. The only entertainment in the town is a theatre. The theatre has a fixed cost of 2000 dollars for preparing each play. However, once the play is ready, then selling an additional ticket has no cost at all. Demand for adult citizens and children are given in the following table  What price would this theatre company charge for an adult ticket and for a child’s ticket? How much will it make?

The three graphs below illustrate the market for electricity. The distribution of electricity is a natural monopoly; therefore, to take advantage of lower production costs, it is efficient to have only one firm in the market. Unfortunately, if a monopoly were allowed to provide electricity, it would charge a higher price and provide a smaller amount of electricity than would be desirable. In other words, the unregulated monopoly would charge the monopoly's profit-maximizing price. To avoid this, the government will allow a single firm to provide electricity, but the government will regulate the price. Let’s compare possible regulatory solutions.

From the following graph, show the equilibriums under each scenario.   Market is in equilibrium at A under competitive market. (a) Show the equilibrium under monopoly. Call this point B (b) When the demand increased in the area due to immigration, show the new competitive equilibrium, call this point C. (c) Show the new monopolistic equilibrium with increased demand and call this point D.

A patent gave Sony a legal monopoly to produce a robot dog called Aibo​. The​ Chihuahua-size pooch robot can​ sit, chase​ balls, dance, and play an electronic tune. When Sony started selling the toy in July​ 1999, it announced that it would sell 3,000 Aibo robots in Japan for about ​$2,000 each and a limited litter of in the United States for $2,500 each. Suppose that​ Sony's marginal cost of producing Aibos is ​$500.Its inverse demand curve is Pj= 3500−0.5Qj in Japan and Pa =4500−Qa Solve for the equilibrium prices and quantities​ (assuming that U.S. customers cannot buy robots from​ Japan).     The equilibrium quantity in Japan is ____and the​ price, Pj is $____​

Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P=1,600−10QP=1,600−10Q Total Revenue: TR=1,600Q−10Q2TR=1,600Q−10Q2 Marginal Revenue: MR=1,600−20QMR=1,600−20Q Marginal Cost: MC=400+10QMC=400+10Q   where QQ indicates the number of copies sold and PP is the price in Ectenian dollars. Complete the following table by finding the price and quantity that maximize the company's profit and the price and quantity that maximize social welfare. Scenario Price Quantity (Dollars) (DVDs) Maximizes the company's profit     Maximizes social welfare       The deadweight loss from the monopoly is   .   Suppose, in addition to the foregoing costs, the director of the film has to be paid. The company is considering four options: I. A flat fee of 3,000 Ectenian dollars II. 50 percent of the profits III. 150 Ectenian dollars per…

Exercise 6.3.Little Kona is a small coffee company considering entering a market dominated by Big Brewer. The benefits of each of them depend on whether or not the first enters and whether the second sets a high or low price: After analazing the graph, answer the following question: Great Brew threatens Little Kona by telling her, "If you go in, we're going to set a low price, so the best thing you can do is not get in." Do you think Little Kona should believe the threat? Why yes or why not?

Assume the supply curve of the typical taxi cab driver in Chicago is P = 4 + 2Q. Suppose the market price is P = 12. Assume cab drivers, sellers of taxi services the in Chicago are regulated by a municipal authority. The regulatory authority charges the sellers a “license fee” that must be paid in order to obtain a license to operate a cab. What is the maximum license fee the regulators can charge? Use the concept of the “seller’s surplus” to answer the question.

Question 5: Briefly explain the three market arenas.

Classifying a good as rival means   A. that the good is produced in a competitive market.   B. anyone who does not pay for the good cannot consume it.   C. that there is a shortage of the good.   D. that when one person consumes a unit of the good no one else can consume it.

Consider the table below, which shows seven potential customers who are interested in taking a 30-minute helicopter ride. The helicopter has room for eight people, including the pilot. The cost to the helicopter company of taking on each additional passenger is $5 Part 1. If the company can charge only one price, what should it be? $_______ Part 2. Suppose instead of charging one price for adults and one price for children, the helicopter company decides to charge different prices for young children (ages 12 and under), teenagers, adults, and senior citizens (those people 65 and older). What price should the firm charge for each group, and what total profit could it earn as a result? Senior citizens: _______ Adults: _________ Teenagers: _______ Young children: _________ Total profit: $_________

Economics Consider the following cost function faced by the monopolist: TC(q)= 2q2+20q+10. The demand faced by the monopolist is the following: p(q)=200-10q, where q denotes quantity and p denotes price.   Find the price and quantity that maximizes profit of the monopolist. If the monopolist becomes a perfectly price discriminating monopolist, calculate the Consumer Surplus and Producer Surplus.

Suppose a small town has two bakeries: Bakery A and Bakery B. The residents of the town have different preferences when it comes to buying bread. Bakery A produces high-quality bread and charges a price of $5 per loaf, while Bakery B produces standard-quality bread and charges a price of $3 per loaf. The demand for bread in the town can be represented by the following equations: Q_A = 200 - 10P_A + 4P_B Q_B = 150 - 6P_B + 2P_A Where: Q_A and Q_B are the quantities of bread demanded from Bakery A and Bakery B respectively. P_A is the price charged by Bakery A. P_B is the price charged by Bakery B. a) Calculate the quantities of bread demanded from Bakery A and Bakery B when P_A = $5 and P_B = $3. b) Calculate the quantities of bread demanded from Bakery A and Bakery B when P_A = $6 and P_B = $2. c) If Bakery A and Bakery B collaborate and decide to charge the same price, what price should they charge to maximize their combined revenue? Calculate the price and the corresponding quantity…

When a firm has no ability to influence market prices it is said to be in what kind of a market?

Ilia is driving home from work. She needs to buy gas and notices an Exxon-Mobil station on one side of the street and a Shell station on the other side of the street. Although run by different companies, the two stations sell gasoline at the same price. a. The most likely reason that the price is the same is that _gas stations always make a profit, so they can charge any price they want. _drivers need gas and are willing to pay whatever price a gas station charges. _government regulation requires both gas stations to charge the same price. _consumers view gasoline from different gas stations as perfect substitutes. b. If one station increases its price, _it will be fined by the government. _it will sell more gasoline. _it will make a higher profit. _it will lose customers to the cheaper station across the street.

Lucia owns a plot of land in the desert that isn't worth much. One day, a giant meteorite falls on her property, making a large crater. The event attracts scientists and tourists, and Lucia decides to sell nontransferable admission tickets to the meteor crater to both types of visitors: scientists (Market A) and tourists (Market B). The following graphs show daily demand (D) curves and marginal revenue (MR) curves for the two markets. Lucia’s marginal cost of providing admission tickets is zero.      Suppose that at first, Lucia charges the same price of $4 per admission in both markets so that the total number of admissions demanded is______tickets.   Suppose now that Lucia decides to charge a different price in each market. To maximize revenue, Lucia should charge_________per admission in Market A and________per admission in Market B. At these prices, she will sell a total quantity of _________admission tickets per day. Complete the following table by calculating…

DO SOMETHING WITH THE NUMBER Consider a market with free entry and exit where all firms are identical and have the following TVC schedule and a fixed cost of 32. Q           1             2             3             4             5             6              7             8             9             10 TVC     12           20           24           28           34           42           52           64           78           94 And let demand for this good be given by the following schedule. P           2             4             6             8             10             12              14             16             18             20 QD       1700      1600     1500      1400       1300        1200          1100        1000       900           800 a. Now assume that the production of this good comes with an external cost of $4.  On a graph show the supply, demand and marginal social cost for this good.  Also indicate the efficient quantity and the dead weight loss. b. Considering…

The graph below shows the daily demand curve for fresh spring water in a remote mountain village in the land of Far Country. The only spring is controlled by the village chief who earns revenue from the sale of water in order to cover the costs of running the village. The villagers bring their own jugs and pay a price per jug as they leave.         a. What quantity of jugs would be sold each day in order to maximize his total revenue?       Quantity:  b. What price would the chief charge?       Price: $  c. What is MR at this price and quantity?       MR:  d. Assuming no marginal costs, what price would the chief charge in order to maximize his total profits?       Price: $

Will the monopolist produce an output level that is allocatively efficient?

Northside Social (NS) sells cups of coffee and amazing breakfast sandwiches. The current price of a cup of coffee is $3.00 and the current price of an amazing breakfast sandwich is $8.00. At those prices, NS sells 1000 cups of coffee and 200 breakfast sandwiches daily. NS faces a constant marginal cost for each cup of coffee of 50 cents and the constant marginal cost of breakfast sandwiches is $2. NS increases the price of coffee 5%, to $3.15. After the price increase, NS sells 900 cups of coffee, a decrease of 10% in cups of coffee. Assuming the above, what if NS also changes the price of breakfast sandwiches from $8 to $10 (a 25% increase in price) and that the number of breakfast sandwiches sold decreases from 200 to 180 (a 10% decrease in quantity). Which of the following is true? A) Coffee profits and breakfast sandwich profits increase.B) Coffee profits decrease by more than breakfast sandwich profits decrease.C) Coffee profits decrease by more than breakfast sandwich profits…

As more and more people bought home computers during the 1990s, the demand for access to the World Wide Web and the Internet increased sharply. At same time, new companies like Earl’s began to enter the internet-access market competing with older, more established services such as American Online. Despite a massive increase in demand, the price of access to the Web actually declined. Change in Demand Increase Decrease Did not Change Indeterminate Change in Supply Increase Decrease Did not Change Indeterminate

The second column shows Shane’s marginal value schedule, which is also his demand schedule when he is offered a single price and can buy as many donuts as he wants at that price. The third column shows Miriam’s marginal cost schedule. Answer the following questions, and include a couple of sentences providing an explanation for your answer.   If Miriam can charge a different price for different quantities, and if she is trying to maximize her producer surplus how many donuts will she sell? Does your answer to (a.) violate our result that profit is maximized by setting the quantity where marginal revenue equals marginal cost?

Two consumers, Smith and Jones, have the following demand curves for recorded operas broadcasts on Saturdays:Smith: PS = 12 - Q Jones: PJ = 12– 2QWhere PS and PJ represent the marginal willingness-to-pay values for Smith and Jones, respectively, and Q represents the number of hours of opera broadcast each Saturday. If Smith and Jones are the only radio listeners, construct the market demand curve for recorded opera broadcasts. If the marginal cost of opera broadcasts is $15 per hour, what is the socially optimal number of hours of broadcast opera?

Exercise A.9 You are an executive of Super Computer, INC. (SC), which rents supercomputers. SC receives a fixed rent for a period of time in exchange for the right to use unlimited computers equal to P cents per second. SC has two types of potential clients of equal numbers: 10 companies and 10 academic institutions. Each company has the demand function Q = 10 – P, where Q is expressed in millions of seconds per month; each academic institution has the demand Q = 8 – P. The marginal cost to SC of additional computer utilization is 2 cents per second, regardless of volume.   a) Suppose you can distinguish companies from academic clients. What rental and usage fee would you charge each group? Calculate the profits you would get?  b) Suppose that you cannot separate the two types of customers and that you did not charge a rental fee. What usage quota would maximize your profits? How many benefits would you get?

Suppose that pig farming in a region is a perfectly compet- itive industry. However, one negative consequence of this activity is that it creates water pollution that adversely affects the health of the residents in the nearby communities that rely on the water sources that are contaminated by the pig farms. The market supply curve for pigs (or hogs) is given by H^S = 6p where H^S is the quantity of hogs supplied to the market by farmers in this region. The market demand for hogs is given by H^P = 300 – 4p. The government estimates that the additional medical costs (M) imposed on the nearby communities is given by M = 5H, where H is the quantity of hogs produced and sold in the market. Q: In the absence of clearly defined property rights over water use or con- ventions or some form of government intervention, derive the market equilibrium for hogs and the DWL resulting from the additional medical costs associated with hog production. Please show the formula, thank you.

A cement factory and a hotel are situated next to each another. The cement factory’s demand is described by the inverse demand function: PCement = 200 – C. The factory’s cost function is CCement = 2C2. The inverse demand function for the hotel is given by: PHotel = 100 – H – 2C (in essence, as the factory produces more cement C, the hotel’s demand goes down because of the pollution the factory generates). The hotel’s cost function is: CHotel = ½ H2. a)Set up the profit maximization problems of the factory and the hotel separately. Then solve for the profit-maximizing quantities and prices for each party. Suppose a good-natured “social planner” wants to impose a Pigouvian tax on the cement factory. Find the equilibrium tax rate T* that would allow achieving the socially optimal outcome

Hi! Can you help me with the question below?  Northside Social (NS) sells cups of coffee and amazing breakfast sandwiches. The current price of a cup of coffee is $3.00 and the current price of an amazing breakfast sandwich is $8.00. At those prices, NS sells 1000 cups of coffee and 200 breakfast sandwiches daily. NS faces a constant marginal cost for each cup of coffee of 50 cents and the constant marginal cost of breakfast sandwiches is $2. NS increases the price of coffee 5%, to $3.15. After the price increase, NS sells 900 cups of coffee, a decrease of 10% in cups of coffee. Demand for coffee at NS at this price interval is best described as:A) ElasticB) InelasticC) Unitary ElasticD) Perfectly Elastic

Take this hypothetical situation: Suppose that the supply side of the market for for electric energy is comprised of two sellers: Seller 1 and Seller 2. Let P be the price of one unit of electric energy, and Q be the quantity of electric energy. Seller 1 owns a hydropower factory with a constant marginal cost of $3 and can produce a maximum of 10 units of electric energy. In addition, the hydropower plant has a requirement of a minimum of 3 units of electric energy. Seller 2 owns a solar factory to produce electric energy. This factory has a constant marginal cost of $5 and can produce a maximum of 5 units of electric energy. With this given information, please sketch the market supply by aggregating the two individual supplies. Please label the graph clearly for slopes, kinks, intercepts, etc.

Take this hypothetical situation: Suppose that the supply side of the market for for electric energy is comprised of two sellers: Seller 1 and Seller 2. Let P be the price of one unit of electric energy, and Q be the quantity of electric energy. Seller 1 owns a hydropower factory with a constant marginal cost of $3 and can produce a maximum of 10 units of electric energy. In addition, the hydropower plant has a requirement of a minimum of 3 units of electric energy. Seller 2 owns a solar factory to produce electric energy. This factory has a constant marginal cost of $5 and can produce a maximum of 5 units of electric energy. A) With this given information, please sketch the market supply by aggregating the two individual supplies. Please label the graph clearly for slopes, kinks, intercepts, etc. B) Suppose that the price of geothermal increases. On the graph drawn in part A, show precisely how the supply curve changes. C) Suppose that the price of geothermal increases. In a market…