Pearson eText Microeconomics -- Access Card
2nd Edition
ISBN: 9780136849513
Author: Acemoglu, Daron, Laibson, David, List, John
Publisher: PEARSON
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Chapter 14, Problem 13P
(a)
To determine
Shape of marginal revenue
To determine
(b)
The market price and quantity, when
(c)
To determine
Fixed cost knowing that profits turn out is zero.
(d)
To determine
Construct the
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Suppose a company creates its own differentiated type of sneaker and is thus considered a monopolistically competitive firm. This firm has a constant marginal cost curve. For each unit of output that the monopolistically competitive firm produces, it costs an additional $50$50. The firm's marginal revenue curve is MR=80−6QMR=80−6Q, where Q is the quantity produced. The firm's perceived demand curve is P=80−3QP=80−3Q.
What is the monopolistically competitive firm's profit-maximizing output and price? Write the exact answer. Do not round.
Suppose that you are a manager for a firm like EBC Brakes, which manufactures brakes for automobiles and motorcycles. Your company has two plants, one in the United States and the other in the United Kingdom. The following tables include estimated demand and marginal revenue for your brakes, along with the marginal costs at the two factories.
what quantity and price maximize your firms profit?
What is the profit – maximizing number of brakes produced in the U.S. plant? In the U.K. plant?
Quantity Demanded (brakes per hour)
Price
(dollars per brake)
Quantity Produced in the U.K. plant (brakes per hour)
Quantity Produced in the U.S. (brakes per hour)
Total Quantity Produced
Marginal Cost (dollars per brake)
Marginal Revenue (dollars per brake)
104
196
47
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89
66
92
105
195
48
44
92
68
90
106
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49
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95
70
88
107
193
50
48
98
72
86
108
192
51
50
101
74
84
109
191
52
52
104…
Consider a monopolistically competitive firm that faces demand curve P=160-3Q and total cost curve TC=100+Q².
If this firm is profit-maximizing, what is the value of the average total cost (ATC) evaluated at Q*? (note: I am not asking for total costs. It's the value you would mark
on your graph when you plug Q* into the ATC curve).
Chapter 14 Solutions
Pearson eText Microeconomics -- Access Card
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- A friend has just started up her own business. Her firm asks you how much to charge for her product to maximize profits. The demand schedule for it is given by the first two columns in the table below; its total costs are given in the third column. For each level of output, you can calculate total revenue, marginal revenue, average cost, and marginal cost. The profit-maximizing level of output can be found at the point where TR - TC is greatest, or where MR = MC, (or the last quantity where MR is still greater than MC.) What is the profit-maximizing level of output for her product? 40 How much will she earn in profits? 80 Price Quantity TC TR? MR? MC? $25.00 0 $130 $24.00 10 $275 $23.00 20 $435 $22.50 30 $610 $22.00 40 $800 $21.60 50 $1,005 $21.20 60 $1,225arrow_forwardThe diagram above represents a monopolistically competitive firm. Answer the questions below. Is this firm operating in the short-run or long-run? How do you know? Calculate this firm’s accounting profit. From the diagram, what is the productively efficient output for this firm? From the diagram, economies of scale are maximized at which output level? Explain. From the diagram, what is the allocatively efficient output for this firm? Explain.arrow_forwardencient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. 3; 100 50 90 80 88 + 70 70 60 550 40 PRICE (Dollars per razor) 30 30 10 MC 20 20 0 10 10 ATC +. ? Mon Comp Outcome MR Demand 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of razors) Min Unit Costarrow_forward
- The following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?arrow_forwardA firm in monopolistic competition produces an output level Q1 = 100 where marginal revenue is equal to marginal cost. At this output level, the price is P1 = $75 and the average total cost is ATC1 = $25. Draw the graph for the monopolistically competitive firm in the short-run equilibrium using the numbers provided above (include ATC, D, MC, and MR curves). Label everything! On the graph, show the markup and the excess capacity for this firm. Draw the graph for the monopolistically competitive firm in long-run equilibriumarrow_forwardThe diagram above shows a monopolistically competitive firm in the long run. Answer the questions below. If the firm is currently producing and selling Q1 units, what is the price being charged? Using the points displayed on the diagram, name the rectangular area that represents the total fixed cost of production. Using the points displayed on the diagram, name the rectangular area that represents the total variable cost of production. ) Using the points displayed on the diagram, name the rectangular area that represents the profit or loss. What should the firm do regarding price and/or quantity to minimize its losses?arrow_forward
- In the figure to the right, let D be the demand for a monopolistically competitive firm's output. Its marginal revenue is represented by MR. The firm's average cost of production is AC and its marginal cost of production is MC. A monopolistically competitive firm maximizes profit by producing the quantity where marginal cost (MC) equals marginal revenue (MR). Price is then set according to the demand curve (D), indicated by point maximum in the figure. The full-capacity average cost and quantity occur at the minimum point on the firm's average cost curve, indicated by @emclent in the figure A monopolistically competitive firm maximizes its profit where it is operating at less than full capacity or minimum efficient scale, which is the smallest quantity at which the average cost curve reaches its minimum (the bottom of a U-shaped average cost curve). The firm's minimum efficient scale is the quantity at which the firm no longer benefits from economies of scale. Does this result depend…arrow_forwardExercise A.4. A company operating in a market of monopolistic competition has an inverse demand curve for its product: P=315-3q, where q is the number of units produced of the good and P its price. The total cost of production of this company is given by: TC(q)=q²+75q+4000. a) To maximize profits, how many units of the good should you sell? b) What price should I charge? (c) What benefits would it reap? (d) Given the above information, how much would you have to reduce fixed costs for longterm equilibrium to occur? Represent graphicallyarrow_forwardUse the orange points (square symbol) to plot the initial short-run industry supply curve when there are 10 firms in the market. (Hint: You can disregard the portion of the supply curve that corresponds to prices where there is no output since this is the industry supply curve.) Next, use the purple points (diamond symbol) to plot the short-run industry supply curve when there are 15 firms. Finally, use the green points (triangle symbol) to plot the short-run industry supply curve when there are 20 firms. PRICE (Dollars per pound) 100 90 80 70 80 50 40 30 20 10 0 0 125 250 375 500 825 750 875 1000 1125 1250 QUANTITY (Thousands of pounds) Demand Because you know that competitive firms earn Supply (10 firms) True Supply (15 firms) If there were 10 firms in this market, the short-run equilibrium price of rhodium would be $ would . Therefore, in the long run, firms would False Supply (20 firms) per pound. From the graph, you can see that this means there will be ? per pound. At that price,…arrow_forward
- A shoe store in a monopolistically competitive market has a demand curve for their shoes given by P = 81-0.5Q. The variable costs of producing a shoe are given by the equation VC = Q2 + 3Q and so the marginal costs are MC = 20 +3. a) What is the shoe store's profit - maximizing output and price? If the shoe store is in a long-run equilibrium, what must its fixed costs be?arrow_forward3. How short-run profit or losses induce entry or exit Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. PRICE (Dollars per scooter) 500 450 400 350 300 250 200 150 100 50 0 0 MC 50 100 ATC MR Demand 150 200 250 300 350 400 450 500 QUANTITY (Scooters) Monopolistically Competitive Outcome Given the profit-maximizing choice of output and price, Citrus Scooters is earning Profit or Loss sellers in the industry relative to the long-run equilibrium amount. ? profit, which means there arearrow_forwardAssume the figure on the right shows the cost structure for a monopolistically competitive firm selling a particular brand of shoes. MC is the marginal cost curve and AC is the average cost curve. If this firm produces 2 thousand pairs of shoes, does it minimize average cost? How much more would they need to produce to reach minimum average cost? The firm needs to produce an additional thousand pairs of shoes to reach minimum average cost. (Enter your response as an integer.) SEED Price (dollars per pair) 80- 72- 64- 56- 48- 40- 32- 24- 16- 8- 0- 0 1 Quantity (in thousands) MC AG 10 Q 20arrow_forward
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