MICROECONOMICS (LL) W/ACCESS
21st Edition
ISBN: 9781260199888
Author: McConnell
Publisher: MCG
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Chapter 12, Problem 7RQ
To determine
Main problem with imposing socially optimal price .
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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.…
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?
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?
Chapter 12 Solutions
MICROECONOMICS (LL) W/ACCESS
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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- Reference: Ref 11-2 (Exhibit: Profit Maximization for a Firm in Monopolistic Competition) Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC'. Suppose further that after the innovation reduced the cost to ATC', it costs a total of $18 per unit to produce 170 units per day. If the firm charges a price equal to marginal cost, total net profit will be: a. $1,190. b. $3,400. c. $1,700. d. $3,060. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.arrow_forwardA monopolist’s inverse demand function is P = 150 − 3Q. The company produces out- put at two facilities; the marginal cost of producing at facility 1 is MC1(Q1) = 6Q1, and the marginal cost of producing at facility 2 is MC2(Q2) = 2Q2. (LO1, LO8) a. Provide the equation for the monopolist’s marginal revenue function. (Hint: Recall thatQ1 +Q2 =Q.) b. Determine the profit-maximizing level of output for each facility. c. Determine the profit-maximizing price.arrow_forwardIn view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 12.9. Assuming that a government subsidy might be used to cover any loss resulting from marginal-cost pricing, which pricing policy would you favor? Why? What problems might such a subsidy entail?arrow_forward
- Draw the demand curve, marginal revenue, and marginal cost curves from Figure : , and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose the demand for the monopoly’s product increases dramatically. Draw the new demand curve. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. What do you think about the result? 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.arrow_forwardAssume 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_forwardFigure 15-1Refer to Figure 15-1. Which of the following statements about the firm depicted in the diagram is true? The fact that this firm is a natural monopoly is shown by the continually declining marginal revenue curve as output rises. The fact that this firm is a natural monopoly is shown by the fact that marginal cost lies below the long-run average total cost where the firm maximizes its profits. The fact that this firm is a natural monopoly is shown by the continually declining long-run average total cost as output rises. The fact that this firm is a natural monopoly is shown by the continually declining market demand curve as output rises.arrow_forward
- . (Requires calculus). In the model of a dominant firm, assume that the fringe supply curve is given by Q = -1 + 0.2P, where P is market price and Q is output. Demand is given by Q = 11 – P.What will price and output be if there is no dominant firm? Now assume that there is a dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve that it faces and calculate its profit-maximizing output and price. highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones bids $1 they pay a total of $3, but Jones gets the money, leaving him with a net gain of $98 and Smith with -$1. If both bid the same amount, the $100 is split evenly between them. Assume that each of them has only two $1 bills on hand, leaving three possible bids: $0, $1 or $2. Write out the payoff matrix for this game, and then find its Nash equilibrium.arrow_forwardIndicate whether the statement is TRUE, FALSE, or UNCERTAIN and explain why. 1. It is economically more efficient to have a monopolist that discriminates perfectlythan a monopolist that sets a single price. 2. If a monopsonist faces a perfectly elastic supply curve, there will be no deadweightloss relative to the competitive outcome 3. In a Cournot duopoly market, the two firms agree to produce half of the monopolyoutput level for that market and split the resulting profit. Since the monopoly profit is the highest profit that can be obtained, the two firms will always stick to that agreement even if it’s not legally (or in any other way) binding.arrow_forward1.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. LO1arrow_forward
- Figure: Maximum Willingness to Pay P $100 75 45 100 100 110 125 2 125 MR MC What is the profit-maximizing quantity for this monopolist? O 110 75 Darrow_forwardAt these levels of output the marginal revenue in the manufactured items market is and the marginal revenue in the semimanufactured raw materials market is . At these prices, the price elasticity of demand in the manufactured items market is and the the price elasticity of demand in the semimanufactured raw materials market is . (Hint: ED=PMR−P��=�MR−�) What are the total profits if the company is effectively able to charge different prices in the two markets? . If the company is required by law to charge the same per-ton rate to all users, the new profit-maximizing level of price and output are per ton and tons respectively. The total profits in this situation is .arrow_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_forward
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