Monopoly and Marginal Cost

3383 Words14 Pages
Practice Questions and Answers from Lesson III-3: Monopoly Practice Questions and Answers from Lesson III-3: Monopoly The following questions practice these skills:  Explain the sources of market power.  Apply the quantity and price affects on revenue of any movement along a demand curve.  Find the profit maximizing quantity and price of a single-price monopolist.  Compute deadweight loss from a single-price monopolist.  Compute marginal revenue.  Define the efficiency of P = MC.  Find the profit-maximizing quantity and price of a perfect-price-discriminating monopolist.  Find the profit-maximizing quantity and price of an imperfect-price-discriminating monopolist. Question: Each of the following firms possesses market power.…show more content…
They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. Price of download Quantity of downloads demanded $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. Calculate the total revenue and the marginal revenue per download. b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold? c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold? e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold? Answer to Question: a. The accompanying table calculates total revenue (TR) and marginal revenue (MR). Recall that marginal revenue is the additional revenue per unit of output Price of download Quantity of downloads TR MR demanded $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would charge $0. At that price, there would be 15 downloads, the largest quantity they can sell. c. Bill would charge $4.

More about Monopoly and Marginal Cost

Open Document