The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?

The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter10: Monopolistic Competition And Oligopoly

Section: Chapter Questions

Problem 19P: Andreas Day Spa began to offer a relaxing aromatherapy treatment. The film asks you how much to...

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Andreas Day Spa began to offer a relaxing aromatherapy treatment. The film asks you how much to charge to maximize profits. The first two columns in Table 10.5 provide the price and quantity for the demand curve for treatments. The third column shows its total costs. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits?
The makers of Panax pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panax and generic paracetamol are the same and constant. 1. Draw a diagram showing Panax’s demand, marginal revenue and marginal cost curves. Label Panax’s price and mark-up over marginal cost. 2. Repeat part (1) for a producer of generic paracetamol. How do the diagrams differ? Which company has the bigger mark-up? Explain. 3. What factors would affect the extent to which the makers of Panax could engage in predatory or destroyer pricing to force out competitors in this market?
The makers of Panax pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panax and generic paracetamol are the same and constant. Draw a diagram showing Panax’s demand, marginal revenue and marginal cost curves. Label Panax’s price and mark-up over marginal cost. Repeat part 1 for a producer of generic paracetamol. How do the diagrams differ? Which company has the bigger mark-up? Explain. What factors would affect the extent to which the makers of Panax could engage in predetory or destroyer pricing to force out competitors in this market?
Exercise 5.8 The makers of Panadol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panadol and generic paracetamol are the same and constant. a. Draw a diagram showing Panadol’s demand, marginal revenue and marginal cost curves. Label Panadol’s price and mark-up over marginal cost. b. Repeat part (a) for a producer of generic paracetamol. How do the diagrams differ? c. Which company has the bigger mark-up? Explain. d. Which company has the bigger incentive for careful quality control? Why? e. How might barriers to entry influence the behaviour of the makers of Panadol ? f. What factors would affect the extent to which the makers of Panadol could engage in predatory or destroyer pricing to force out competitors in this market?
The market for Banh Mi in Auckland CBD consists of 6 restaurants operating in monopolistic competition. Suppose that these firms face monthly fixed costs of $5,000 and marginal costs of $3. a) Draw the average cost and marginal cost curves for a representative firm. b) If the short run market price is $6 and each firm sells 2000 units per month, what will occur in the long run? Explain and show on a graph. c) Suppose that Banh Mi become more popular as a lunch option, and market demand increases. Explain the short run and long run effects on the market, including price, firm-level quantity and number of firms. Use graphs to explain your answer.
Suppose the monopolistically competitive barber shop industry in a community is in long-run equilibrium, and that the typical price is $20 per haircut. Moreover, the population is rising. 1. Illustrate the short-run effects of a change on the price and output of a typical firm in the market. 2. Show what happens in the long run. Will the final price be higher than $20? Equal $20? Be less than $20? Assume that nothing happens to the cost of producing haircuts. 3. Suppose that, initially, the price of a typical children’s haircut is $10. Do you think this represents price discrimination? Why or why not?
Andrea’s Day Spa began to offer a relaxingaromatherapy treatment. The firm asks you how muchto charge to maximize profits. The first two columnsin Table 10.5 provide the price and quantity for thedemand curve for treatments. The third column showsits total costs. For each level of output, calculate totalrevenue, marginal revenue, average cost, and marginalcost. What is the profit-maximizing level of output forthe treatments and how much will the firm earn inprofits?
Samurai Sam's, a producer of frozen sushi, is a monopolistically competitive firm. The firm is currently selling frozen California rolls at a $4 price. Samurai Sam's marginal cost is $1.75 and its marginal revenue is $1.50. The firm should ________ to maximize profits in the short run. Question 7Answer a. continue to produce the same output level b. decrease output to where marginal revenue just equals marginal cost c. increase output to where marginal revenue just equals marginal cost d. Indeterminate from the given information.
(i) Use the graph below to explain the output, profit and loss conditions formonopolistically competitive firms. Show your work where appropriate inreference to the Graph.(ii) With examples, examine the barriers to business entry for imperfectcompetition firms.
(Short-Run Profit Maximization) A monopolisticallycompetitive firm faces the following demand and coststructure in the short run: a. Complete the table.b. What is the highest profit or lowest loss available tothis firm?c. Should this firm operate or shut down in the short run?Why?d. What is the relationship between marginal revenue andmarginal cost as the firm increases output?
A publisher faces the following demand schedule for the next novel from one of itspopular authors:Price Quantity Demanded$ 100 0 novels90 100,00080 200,00070 300,00060 400,00050 500,00040 600,00030 700,00020 800,00010 900,0000 1,000,000The author is paid $2 million to write the book, and the marginal cost of publishingthe book is a constant $10 per book.a. Compute total revenue, total cost, and profit at each quantity. What quantity woulda profit-maximizing publisher choose? What price would it charge?b. Compute marginal revenue. (Recall that MR = ΔTR/ΔQ.) How does marginal revenuecompare to the price? Explain.C. Graph the marginal-revenue, marginal-cost, and demand curves. At what quantitydo the marginal-revenue and marginal-cost curves cross? What does this signify?d. In your graph, shade in the deadweight loss. Explain in words what this means e. If the author were paid $3 million instead of $2 million to write the book, how wouldthis affect the publisher’s decision regarding what…
Andrea’s Day Spa began to offer a relaxing aromatherapy treatment. The firm asks you how much to charge to maximize profits. The demand curve for the treatments is given by the first two columns in the following table; its total costs are given in the third column. For each level of output, calculate total revenue, marginal revenue, average cost, marginal cost, and profits. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits? Price Quantity TC MC AC TR MR Profit $25.00 0 $130 --- --- $24.00 10 $275 $23.00 20 $435 $22.50 30 $610 $22.00 40 $800 $21.60 50 $1,005 $21.20 60 $1,225