ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
14th Edition
ISBN: 9781337912396
Author: Baumol
Publisher: CENGAGE L
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Chapter 13, Problem 9DQ
To determine
The effectiveness of market forces to keep the
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Create graph that includes:
Demand curve, marginal cost, and marginal revenue.
Identify the profit-maximizing quantity and price for this monopolist. To do this you will need to determine marginal revenue at each level of output. Choose output that satisfies the monopolist’s profit maximizing condition of MR = MC.
Does this firm earn a profit? How much profit if they do?
A monopolist sells boat insurance policies linked to their registrations in two states, and resales between the two states is not allowed, as the registrations are in line with the rules set in each state. The demand curves for car insurance policies in the two states are:
P1 = 200 – Q1
P2 = 150 – Q2
The monopoly's marginal cost is $50.
a. Find the equilibrium quantity and price charged in each state.
b. How would change the outcome if the monopolist’s marginal cost increases from $50 to $70 only in the first state for the company being able to discriminate prices between states?
c. What would be the outcome if the government applies a tax of $30 per insurance (unit) to the latest scenario presented in b)?
d. Present a graphical representation of this case study and discuss about the profit maximising output under the different scenarios presented above. Does the government have other alternatives to intervene this market?
If the quantity demanded at a price of $10 is 2,000 and
the quantity demanded at a price of $8 is 2,400, what
should a price-discriminating monopolist do to
maximize profits?
Chapter 13 Solutions
ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
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- Draw a graph with linear demand and marginal curves and a horizontal MC curve. Find the monopolist’s profit-maximizing price (P*) and output (Q*). Now change the demand curve by rotating it clockwise (making it steeper) through the point (Q*, P*). What is the new profit-maximizing price and quantity? Is price higher or lower? Relate your answer to the fact that a monopolist does not have a supply curvearrow_forwardSuppose that a monopolist’s demand curve is P = 9 – 2*Q. Marginal cost is expressed as follows: MC = 0.5*Q. What is the profit-maximizing price (P) the monopoly should set? What would be the output (Q) at that price? What are the current values for the consumer and producer surpluses (CS and PS)? Is it possible to calculate the profit made by the monopolist? If so, how much is it? If not, what other information would be needed to do that? What would be the 2 key options for a government regulator to increase the consumer surplus (CS) and reduce the producer surplus (PS)? Explain briefly the pros and cons of one of the options!arrow_forwardRent seeking The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. table 1 Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its patent for one more year. The firm is prepared to spend up to $_____ million to extend its patent.arrow_forward
- Suppose a firm has acquired a monopoly on water distribution in a certain county in Florida. The following table represents the demand and costs this monopolist faces. Fill in the missing values in the table. The goal of the monopolist is to maximize its profit. What price per gallon of water should it charge and how many gallons per month should it sell? How much profit does it make? Suppose that the government imposes a tax of $1 million per month on water production. What price should this water distributor charge? How many gallons per month should it sell? How much profit would it make?arrow_forwardWhat is the usual shape of a marginal revenue curve for a monopolist? Why? When a monopolist identifies its profit-maximizing quantity of output, how does it decide what price to charge? Is a monopolist allocatively efficient? Why or why not? ALCOA does not have the monopoly power it once had. How do you suppose their barriers to entry were weakened? For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global market, where U.S. firms compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context? If public utilities are a natural monopoly, what would be the danger in deregulating them? Why does regulatory capture reduce the persuasiveness of the case for regulating industries for the benefit of consumers? In the middle of the twentieth century, major U.S. cities had multiple…arrow_forwardThe following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps releve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to Indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolst. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. 10 Manapaly Outcome Manapaly Profits 4 MC = ATC 1. MR Damand 3 4 QUANTITY (Millians of dasas par yaar) 5 6 10 1 2 6 8 Suppose that should the patent on this particular drug explre, the market would become perfectly competitive, with new firms Immedlately enterling the market with essentially Identical products. Further suppose that In this case the original firm will hire lobbylsts and make donations to several key politicians to extend Its patent for one more year. The firm Is prepared to spend up to $ million to extend…arrow_forward
- The following graph shows the demand, marginal revenue, and marginal cost curves for a single-price monopolist that produces a drug that helps relieve arthritis pain. Place the grey point (star symbol) in the appropriate location on the graph to indicate the monopoly outcome such that the dashed lines reveal the profit-maximizing price and quantity of a single-price monopolist. Then, use the green rectangle (triangle symbols) to show the profits earned by the monopolist. PRICE (Dollars per dose) 0 19 1 MC ATC MR 2 3 7 5 4 5 6 QUANTITY (Millions of doses per year) Demand 9 10 [x| Monopoly Outcome Monopoly Profits Suppose that should the patent on this particular drug expire, the market would become perfectly competitive, with new firms immediately entering the market with essentially identical products. Further suppose that in this case the original firm will hire lobbyists and make donations to several key politicians to extend its patent for one more year. The firm is prepared to…arrow_forwardHow do I do this?arrow_forwardSuppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of $45.00 per unit. If the elasticity of demand for the product is - 2.50, find the marginal cost of the last unit produced. The marginal cost of the last unit produce is $. (Enter your response rounded to two decimal places.) What is the firm's percentage markup of price over marginal cost? The firm's percentage markup of price over marginal cost is percent. (Enter your response rounded to two decimal places.) Suppose that the average cost of the last unit produced is $12.00 and the firm's fixed cost is $2000. Find the firm's profit. The firm's profit is $ (Enter your response rounded to two decimal places.)arrow_forward
- In this question, you will discuss the general case of positive externalities in a monopolist’s presence. what is the impact of a monopolist’s presence on a market without positive externalities? Does monopolist hurt the overall social gain (i.e., total surplus or total welfare)? Please explain. Could a monopolist improve the competitive market outcome for a good or a service with positive externalities (and no government intervention to correct it)? Why or why not? Please explain.arrow_forwardThe table shows the demand schedule of a monopolist. Calculate marginal revenue and fill in the revenue column in the table. Assume that output can only be sold in integer amounts (i.e., 1 unit, 2 units, etc.). Once you have filled in marginal revenue, identify the quantity produced by the monopolist in this market. Not all numbers in the answer bank will be used. Quantity Price Marginal cost Marginal revenue 1 $13 $1 Answer Bank $12 $2 $3 $6 $1 $5 $10 3 $11 $3 $0 $7 $8 $9 $12 4 $10 $4 $13 $11 $2 $4 5 $9 $5 6. $8 $6 %24arrow_forwardHi! I got stuck with my microeconomics homework. Can you please help? Here's the problem: A monopolist knows that in order to expand the quantity of output it produces from 8 to 9 units it must lower the price of its output from $2 to $1. Calculate the quantity effect and the price effect. Use these results to calculate the monopolist’s marginal revenue of producing the 9th unit. The marginal cost of producing the 9th unit is positive. Is it a good idea for the monopolist to produce the 9th unit? It is from Microeconomics: Canadian Edition by Paul Krugman; Robin Wells; Iris Au; Jack Parkinsonarrow_forward
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