MANAGERIAL/ECON+BUS/STR CONNECT ACCESS
9th Edition
ISBN: 2810022149537
Author: Baye
Publisher: MCG
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Question
Chapter 13, Problem 2CACQ
a.
To determine
To find: The present value of the monopolist’s current and future earnings if entry occurs.
b.
To determine
To explain: Whether monopolist should limit the price to earn
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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.
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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?
Chapter 13 Solutions
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- Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: P = 10 - Q Marginal Revenue:MR = 10 - 2 Q Total Cost TC= 3 + Q+0.5 Q2 Marginal Cost: MC= 1+ Q, where Q is quantity and Pis the price measured in Wiknamian dollars. a. How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? b. One day, the King of Wiknam decrees that henceforth there will be free trade-either imports or exports of soccer balls at the world price of $6.The firm is now a price taker in a competitive market What happens to the domestic production of soccer balls? To domestic consumption? Does Wiknam export or import soccer balls? c. In our analysis of international trade in Chapter a country becomes an exporter when the price without trade is below the…arrow_forwardOnly one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: P=15-Q Marginal Revenue: MR = 15-20 Total Cost: Marginal Cost: TC=3+Q+0.50² MC = 3+Q where Q is quantity and P is the price measured in Wiknamian dollars. The monopolist produces soccer balls and sells them at a price of s each. The monopolist's profit is s The domestic production of soccer balls will to Wiknam will soccer balls in this case. One day, the King of Wiknam decrees that henceforth there will be free trade-either imports or exports-of soccer balls at the world price of $10. The firm is now a price taker in a competitive market. soccer balls, and domestic consumption will to in this case. In the analysis of international trade in Chapter 9, a country becomes an exporter when the price without trade is below the world…arrow_forwardGive typing answer with explanation and conclusion A monopolist has a demand curve given by P = 88 − Q and a total cost curve given by TC = 34 + Q2. The associated marginal cost curve is MC = 2Q. Suppose the monopolist also has access to a foreign market in which he can sell whatever quantity he chooses at a constant price of 60. How much will he sell in the foreign market? What will his new quantity and price be in the original market?arrow_forward
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