MICROECONOMICS(LL)COMPANION
21st Edition
ISBN: 9781260713541
Author: McConnell
Publisher: MCG
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Chapter 12, Problem 4RQ
To determine
Perfect competitive firms and price discrimination .
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1.Briefly state the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case, justify your classification. LO1
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?
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?
Chapter 12 Solutions
MICROECONOMICS(LL)COMPANION
Ch. 12.4 - The MR curve lies below the demand curve in this...Ch. 12.4 - Prob. 2QQCh. 12.4 - Prob. 3QQCh. 12.4 - Prob. 4QQCh. 12 - Prob. 1DQCh. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQ
Ch. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - 10. LAST WORD Using Big Data to set personalized...Ch. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5P
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- Suppose that the paper clip industry is perfectly competitive. Also assume that the market price for paper clips is 2 cents per paper clip. The demand curve faced by each firm in the industry is: LO10.3 a. A horizontal line at 2 cents per paper clip. b. A vertical line at 2 cents per paper clip. c. The same as the market demand curve for paper clips. d. Always higher than the firm’s MC curve.arrow_forward4. 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_forward7. You are the manager of a monopolistically competitive firm, and your demand and costfunctions are given by Q = 36 − 4P and C(Q) = 4 + 4Q + Q2. (LO1, LO3, LO5)a. Find the inverse demand function for your firm’s product.arrow_forward
- Two firms with the same (constant) marginal costs are engaging in Bertrand competition. One of the companies exits the industry. As a aconsequence, the price for the other firm increases by 50%. What is the elasticity of demand in this market?O. 3O. 2O. 2.5O. 4arrow_forwardA firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q2. (LO3) b. What price should the firm charge in the short run? c. What are the firm’s short run profits? d. What adjustments should be anticipated in the long run?arrow_forwardAs the manager of a monopoly, you face potential government regulation. Your inversedemand is P = 40 − 2Q, and your costs are C(Q) = 8Q. (LO1, LO2, LO6)a. Determine the monopoly price and output.arrow_forward
- Suppose that the pen-making industry is perfectly competitive. Also suppose that each current firm and any potential firms that might enter the industry all have identical cost curves, with minimum ATC = $1.25 per pen. If the market equilibrium price of pens is currently $1.50, what would you expect it to be in the long run? LO11.2 a. $0.25. b. $1.00. c. $1.25. d. $1.50.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 the following is the best evidence that indirect price discrimination can work in the rental car simulation? Choose the best answer. O 37% of weekday renters are leisure renters O 4% of business renters rent on weekends. O 63% of weekday renters are business renters. O 51% of leisure renters rent on weekdays.arrow_forward
- Assume that annual inverse demand for a particular product is P=150-Q. The product is offered by a pair of Bertrand competitors, each with marginal costs of $75. The discount factor is 0.9. What is the current equilibrium price and total surplus? Now, assume though that if R&D is conducted at rate x, it incurs one-off costs of r(x)=10x^2 and reduces the marginal costs to (75-x). Suppose that one firm decides to conduct R&D at rate x=10. This research will be protected by a patent of T years. a) What profit(ignoring the one-off costs of R&D) does the innovating firm make each year during the period of patent protection? b) What is the new equilibrium price and total surplus once patent protection expires? c) Use your answer above to write the total surplus from the innovationarrow_forwardWhich of the following statements regarding a profit-maximising monopolist is FALSE? O a. This firm might respond to a fall in demand by reducing both its output and its price. O b. This firm might respond to a fall in demand by reducing its output and increasing its price. O c. This firm would respond to a fall in the price of a variable input by increasing its output and reducing its price. d. This firm would respond to a fall in the price of a fixed input by increasing its output and reducing its price.arrow_forward8.1. Bertrand in the real world. The Bertrand model of price competition suggests that, under a given set of conditions, firms make zero economic profits even if there are only two firms. However, there are many instances of industries with a small number of competitors where firms appear to earn more than zero economic profits. Give an example of an industry dominated by a couple of firms where profits are significant. Explain why the predictions of the Bertrand model are not borne out. (Cabral, 20170224) Cabral, L. B. (20170224). Introduction to Industrial Organization, 2nd Edition [VitalSource Bookshelf version]. Retrieved from vbk://9780262338943 Always check citation for accuracy before use.arrow_forward
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