MICROECONOMICS (LL) W/CONNECT
21st Edition
ISBN: 9781260583540
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 11, Problem 7DQ
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Patent and the process of creative destruction.
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With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also, assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneurial ability, selling at prices of $40, $60, $60, and $20, respectively. If the firm can sell these 400 loaves at $2 per unit, will it continue to produce banana bread? If this firm’s situation is typical for the other makers of banana bread, will resources flow to or away from this bakery good?
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that they can do to deal further with the trend toward cord-cutting and competition from large streaming and content producers such at Netflix, Amazon, and other content producers?
Use the accompanying graph to answer the questions that follow. (LO1, LO2) a. Suppose this monopolist is unregulated. (1) What price will the firm charge to maximize its profits? (2) What is the level of consumer surplus at this price? b. Suppose the firm’s price is regulated at $80. (1) What is the firm’s marginal revenue if it produces 7 units? (2) If the firm is able to cover its variable costs at the regulated price, how much output will the firm produce in the short run to maximize its profits? (3) In the long run, how much output will this firm produce if the price remains regulated at $80?
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MICROECONOMICS (LL) W/CONNECT
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- Suppose we have another firm known as the Sanda Corporation which makes a product known as "Delgados". Suppose that its FC=$2,000 and its TC=$5,000 and its AVC=$48. What is the ATC? O $20.50 O $70 O $80 O $100 O Not enough informationarrow_forwardTeletronics reported record profits of $100,000 last year and is on track to exceed those profits this year. Teletronics competes in a very competitive market where many of the firms are merging in an attempt to gain competitive advantages. Currently, the company’s top manager is compensated with a fixed salary that does not include any performance bonuses. Explain why this manager might nonetheless have a strong incentive to maximize the firm’s profits. (LO4, LO5)arrow_forwardNewfoundland’s fishing industry has recently declined sharply due to overfish- ing, even though fishing companies were supposedly bound by a quota agree- ment. If all fishermen had abided by the agreement, yields could have been maintained at high levels. LO4 Model this situation as a prisoner’s dilemma in which the players are Company A and Company B and the strategies are to keep the quota and break the quota. Include appropriate payoffs in the matrix. Explain why overfishing is inevitable in the absence of effective enforcement of the quota agreement. Provide another environmental example of a prisoner’s dilemma. In many potential prisoner’s dilemmas, a way out of the dilemma for a would-be cooperator is to make reliable character judgments about the trustworthiness of potential partners. Explain why this solution is not avail- able in many situations involving degradation of the environment.arrow_forward
- 5. (a) Assume that two firms A and B are in different industries (like computer software and computer hardware). What impact will a merger between these two firms have on the number of firms in each industry after the merger? Please give an explanation. (b) Current automobile companies are facing a shortage of computers chips used in cars to run various parts of the car, and therefore supply of cars has decreased since a necessary part(s) is not available. If an auto company like General Motors (GM) decided to buy a chip manufacturing company to ensure that it did not face a chip shortage in the future, would such a purchase lead to more concentration in either the auto industry or the chip-manufacturing industry? Please give an explanationexplanation.arrow_forwardSuppose the marginal benefit of writing a contract is $100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is: (LO3) a. MC(L) = 30 + 4L. b. MC(L) = 40 + 5L. c. What happens to the optimal contract length when the marginal cost of writing a contract declines?arrow_forward-Give an example of a good or commodity that is intangible and explain why it is so. -Who are the unemployed in terms of economics? Give an example and explain why. -Give an example of a business that falls under the category of a perfect oligopoly and explain why.arrow_forward
- 4. You are the manager of a monopoly, and your demand and cost functions are given by P = 300 − 3Q and C(Q) = 1,500 + 2Q2, respectively. (LO3, LO4) a. What price–quantity combination maximizes your firm’s profits? b. Calculate the maximum profits. c. Is demand elastic, inelastic, or unit elastic at the profit-maximizing price–quantity combination? d. What price–quantity combination maximizes revenue? e. Calculate the maximum revenues. f. Is demand elastic, inelastic, or unit elastic at the revenue-maximizing price–quantity combination? 6. The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. (LO1, LO3, LO5) a. Determine the profit-maximizing output and price. b. What price and output would prevail if this firm’s product were sold by price-taking firms in a perfectly competitive market? c. Calculate the deadweight loss of this monopoly. 8. The elasticity of demand for a firm’s product is –2.5 and its advertising elasticity of demand is 0.2.…arrow_forward4. You are the manager of a firm that produces products X and Y at zero cost. Youknow that different types of consumers value your two products differently, but you are unable toidentify these consumers individually at the time of the sale. In particular, you know there arethree types of consumers (100 of each type) with the following valuations for the two products: Consumer Type Product X Product Y1 $90 $ 602 $70 $1403 $40 $160 a. What are your profits if you charge $40 for product X and $60 for product Y?b. What are your profits if you charge $90 for product X and $160 for product Y?c. What are your profits if you charge $150 for a bundle containing one unit of product X andone unit of product Y?d. What are your profits if you charge $210 for a bundle containing one unit of X and one unit ofY, but also sell the…arrow_forwardWhich of statement is true about economic profit in the long run.(LO2,3). a) both the monopolistic and perfect competitor make one. b) neither the monopolistic nor the perfect competitor makes one. c) only the perfect competitor makes one. d) only the monopolistic makes one.arrow_forward
- 6. The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. (LO1, LO3, LO5) a. Determine the profit-maximizing output and price. b. What price and output would prevail if this firm’s product were sold by price-taking firms in a perfectly competitive market? c. Calculate the deadweight loss of this monopoly. 8. The elasticity of demand for a firm’s product is –2.5 and its advertising elasticity of demand is 0.2. (LO8) a. Determine the firm’s optimal advertising-to-sales ratio. b. If the firm’s revenues are $40,000, what is its profit-maximizing level of advertising?arrow_forwardQuestion 1.Assume there are only two art auction companies who account for 100% of all the sales of 19thCentury impressionist master work paintings in the world. Assume that each company buys thiskind of painting and then resells the paintings at monthly auctions. Ignoring the question of anylaws that might apply, describe what economic arrangement would maximize the twocompanies’ total profits? Show with supply and demand curves what profit they would makefrom this arrangement and what societal welfare loss, if any, results from it.arrow_forwardAbdul’s utility function is given by U A 5 M A 2 y M B , where M A is Abdul’s wealth level and M B is Benjamin’s wealth level. Benjamin’s utility function is given by (LO1) U B 5 M B 2 y M A . Suppose M A 5 M B 5 10 initially, and suppose there is a joint project that Ab dul and Benjamin can undertake that will generate an additional 10 units of wealth to divide between them. The project is neither pleasant nor unpleasant. What is the minimum payment Abdul must be given to secure his agreement to perform the project? What is the minimum payment Benjamin must be given? Will they perform the project? (LO1)arrow_forward
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