EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 8220103632225
Author: PARKIN
Publisher: PEARSON
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Chapter 18, Problem 5IAPA
Use this information to work Problems 5 to 7.
DOJ investigation prompts lawsuits alleging that airlines are fixing airfares
It is alleged that Southwest Airlines, American Airlines, Delta Air Lines, and United Airlines have been colluding to limit the increases in their capacity with the intent of increasing airfares. The airlines say the allegations are without merit and that the airline industry is highly competitive with more people flying than ever before.
Explain how limiting the increase in capacity could lead to higher airfares.
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Question 74
Table 18-4
Only two firms, ABC and XYZ, sell a particular product. The following table shows the demand curve for their
product. Each firm has the same constant marginal cost of $8 and zero fixed cost.
Price
(Dollars per unit)
28
26
20
18
16
14
12
10
6
$90
2
0
$140
$240
Quantity Demanded Total Revenue
$280
(Units)
Refer to Table 18-4. ABC and XYZ agree to maximize joint profits. However, while ABC produces the agreed-upon
amount, XYZ breaks the agreement and produces 5 more than agreed. How much profit does XYZ make?
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
(Dollars)
0
130
240
330
400
450
480
490
480
450
400
330
240
130
0
MelCo’s Xamoff The global pharmaceuticals giant, MelCo, has had great success with Xamoff, and over-thecounter medicine that reduces exam-related anxiety. A patent currently protects Xamoff from competition, although rumors persist that similar products are in development. Two years ago, MelCo sold 25 million units for a price of $10 for a package of ten. Last year it raised the price to $11, and sales fell to 22 million units. Finally, a financial analyst estimates the cost of production at $2 per package. (a) Estimate the elasticity of demand for this product at $10. Is this price too high or too low? (b) Estimate the elasticity of demand for this product at $11. Is this price too high or too low? (c) Based on your answers to (a) and (b), what can we say about MelCo’s profit-maximizing price?
In 2015, Apple introduced the Apple Watch. Assume that the cost of producing the 38mm Apple Watch Sport was
$83.
The price was
$336.
What was Apple's price/marginal cost ratio? What was its Lerner Index? If Apple is a short-run profit-maximizing monopoly, what elasticity of demand did Apple believe it faced?
Part 2
Apple's price/marginal cost ratio was
enter your response here.
Chapter 18 Solutions
EBK FOUNDATIONS OF ECONOMICS
Ch. 18 - Prob. 1SPPACh. 18 - Prob. 2SPPACh. 18 - Prob. 3SPPACh. 18 - Prob. 4SPPACh. 18 - Prob. 5SPPACh. 18 - Prob. 6SPPACh. 18 - Prob. 7SPPACh. 18 - Prob. 8SPPACh. 18 - Prob. 1IAPACh. 18 - Prob. 2IAPA
Ch. 18 - Prob. 3IAPACh. 18 - Prob. 4IAPACh. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Use this information to work Problems 5 to 7. DOJ...Ch. 18 - Prob. 7IAPACh. 18 - Which of the following statements is incorrect. In...Ch. 18 - If firms in oligopoly form a cartel, it will...Ch. 18 - Prob. 3MCQCh. 18 - Prob. 4MCQCh. 18 - Prob. 5MCQCh. 18 - Prob. 6MCQCh. 18 - Prob. 7MCQ
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