A monopolist earns $40 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $40 million in the current period and $22 million annually thereafter. The opportunity cost of funds is 15 percent, and profits in each period are realized at the beginning of each period. a. What is the present value of the monopolist’s current and future earnings if entry occurs? b. If the monopolist can earn $27 million indefinitely by limit pricing, should it do so?

A monopolist earns $40 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $40 million in the current period and $22 million annually thereafter. The opportunity cost of funds is 15 percent, and profits in each period are realized at the beginning of each period. a. What is the present value of the monopolist’s current and future earnings if entry occurs? b. If the monopolist can earn $27 million indefinitely by limit pricing, should it do so?

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Antitrust And Regulation

Section: Chapter Questions

Problem 10SQP

See similar textbooks

Similar questions

A monopolist earns $30 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $30 million in the current period and $15 million annually thereafter. The opportunity cost of funds is 10 percent, and profits in each period are realized at the beginning of each period. a. What is the present value of the monopolist’s current and future earnings if entry occurs? b. If the monopolist can earn $16 million indefinitely by limit pricing, should it do so? Explain.
A monopolist earns $40 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $40 million in the current period and $22 million annually thereafter. The opportunity cost of funds is 15 percent, and profits in each period are realized at the beginning of each period. a. What is the present value of the monopolist’s current and future earnings if entry occurs?Instruction: Enter your response rounded to the nearest penny (two decimal places).$ millionb. If the monopolist can earn $27 million indefinitely by limit pricing, should it do so?
A monopolist earns $70 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $70 million in the current period and $32 million annually thereafter. The opportunity cost of funds is 12 percent, and profits in each period are realized at the beginning of each period.a. What is the present value of the monopolist’s current and future earnings if entry occurs? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Q41 A single-price monopolist is currently producing an output level where price equals marginal cost and profits are positive. To maximise profits, this monopolist should... a. Reduce price and let production adjust to the new price. b. Decrease production and increase price. c. Not change his output level, because it is currently earning profits. d. Increase production and reduce price. e. Produce zero output. Clear my choice
Does a monopolist take market price as given? Why or why not? No, because barriers to entry exist, a monopolist does not take the market price as given. No, a monopolist takes into account that its output decision can affect price, and its marginal revenue is not its price. Yes, a monopolist takes the market price as given because the monopolist faces potential competition from other firms, so the price charged must be competitive. Yes, a monopolist’s marginal revenue is the given market price.
You are considering entering a market serviced by a monopolist You are considering entering a market serviced by a monopolist. You currently earn $0 economic profits, while the monopolist earns $5. If you enter the market and the monopolist engages in a price war, you will lose $5 and the monopolist will earn $1. If the monopolist doesn’t engage in a price war, you will each earn profits of $2.There are two possible solutions or equilibria. What are they? You are considering entering a market serviced by a monopolist
One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where Question 7 options: a) marginal cost equals price, whereas a monopolist produces where price exceeds marginal cost b) marginal cost equals price, whereas a monopolist produces where cost exceeds price c) price exceeds marginal cost, whereas a monopolist produces where marginal cost equals price d) marginal cost exceeds price, while a monopolist produces where marginal cost equals price
Consider a monopolist who is selling his blockbuster drug in two markets where one market is much larger than the other. Suppose the demand in the two markets is given by q1 = 30 − p1 and q2 = 3 − p2 (quantity is measured in millions of complete dosages and price is in your favorite currency) and the marginal cost of production and distribution is roughly the same and equal to 1 per unit (c=1). This problem asks you to compare equilibrium outcomes (prices, quantities, profits, consumer surplus, and consumer surplus per unit of output) when the monopolist can price discriminate across the two markets versus when it must set a uniform price. It then asks you to comment on some recent policy proposals. For each market separately, set up and solve the monopolist’s profit-maximizing problem. Specifically, write down/compute the following. Inverse demand and the profit functions. Equilibrium prices (), quantities () and profits () Consumer surplus () and consumer surplus per unit of…
We learned that in a competitive market equilibrium the Marginal Cost equals the Price, as Marginal Revenue is the same as Price for a perfectly competitive seller. Now, how does the Marginal Cost compare to Price at the monopolist's profit maximizing output and price combination? If Price is generally seen as the monetized Marginal Benefit to consumers of the product and Price exceeds Marginal Cost, then this is allocatively inefficient, as Marginal Benefit exceeds Marginal Cost.
A monopolist is deciding how to allocate output between two geographically separated markets (Market 1 and 2). Demand and marginal revenue for the two markets are:P1 =15-Q1 P2=25-2Q2 The monopolist's total cost is C=5+3(Q1 + Q2) 2.1 Determine the monopolist profit-maximizing price and output in each region. 2.2 What is the total profit that the monopolist will realize for the two regions?
Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost. If profit is less than zero that indicates a loss. What is the maximum profit you found in this table? At what quantity and price combination is profit maximized for this monopolist?
Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium? In the short run, both monopolists and competitive firms _____(can or cannot) earn positive economic profits. In the long run, _____________________ can earn a positive economic profit. 2nd blank choices - neither monopolists nor competititve firms both monopolists and competitive firms monopolists, but not competitive firms competitive firms, but not monopolists True or False: The adjustment to long-run equilibrium occurs more quickly for competitive industries than for monopolists. _________________ (true or false)