Microeconomics with Connect Access Card
20th Edition
ISBN: 9781259278556
Author: Campbell McConnell
Publisher: McGraw-Hill Education
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Chapter 19, Problem 2RQ
To determine
Antitrust scheme and when the merger is permitted.
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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?
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.…
3
1. Describe the bidding process by which the electricity generation sector provides electricity to pooling and balancing authorities. Additionally, show this process by building an electricity supply curve.
a. What antitrust and regulation concerns are present at the wholesale stage of the electricity market?
b. Describe a market design that reduces market manipulation in wholesale electricity markets. Show that the Nash equilibrium under this market design will result in generators bidding their true marginal cost of production.
c. Describe a vertically integrated industry as it pertains to the electricity sector.
d. Describe non-linear (two part) pricing as it pertains to retail electricity sales. What is the
purpose of this pricing system?
Chapter 19 Solutions
Microeconomics with Connect Access Card
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- Question 1.Assume there are only two art auction companies who account for 100% of all the sales of 19thCentury impressionist master work paintings in the world. Assume that each company buys thiskind of painting and then resells the paintings at monthly auctions. Ignoring the question of anylaws that might apply, describe what economic arrangement would maximize the twocompanies’ total profits? Show with supply and demand curves what profit they would makefrom this arrangement and what societal welfare loss, if any, results from it.arrow_forwardUse 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?arrow_forward11 21. Imagine an N firm oligopoly for "nominally differentiated" goods. That is, each of the N firms produces a product that "looks" different from the products of its competitors, but that "really" isn't any different. However, each firm is able to fool some of the buying public. Specifically, each of the N firms (which are identical and have zero marginal cost of production) has a captive market -consumers who will buy only from that firm. The demand generated by each of these captive markets is given by the demand function Pn A- Xn , where Xn is the amount supplied to this captive market and Pn is the price of the production of firm n. There is also a group of intelligent consumers who realize that the products are really undifferentiated. These…arrow_forward
- ft : 00:09:48 Resale price maintenance can prevent showrooming. True False In a successive monopoly structure, if distributor has a constant marginal cost of $5 and is paying the producer $12 per unit, which is the profit-maximizing wholesale price, what is the distributor's marginal revenue at this output level? $17 $12 $7 $5arrow_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_forwardAs the manager of a monopoly, you face potential government regulation. Your inversedemand is P = 40 − 2Q, and your costs are C(Q) = 8Q. (LO1, LO2, LO6)a. Determine the monopoly price and output.arrow_forward
- 9-2 Distinguish marginal revenue and average revenue for a monopolist and explain why marginal revenue is less than average revenue3. (Monopoly) Suppose that a certain manufacturer has a monopoly on the sorority and fraternity ring business (a constant-cost industry) because it has persuaded the “Greeks” to give it exclusive rights to their insignia.a. Using demand and cost curves, draw a diagram depict- ing the firm’s profit-maximizing price and output level. b. Whyismarginalrevenuelessthanthepriceforthisfirm? c. On your diagram, show the deadweight loss that occurs because the output level is determined by a monopolyrather than by a competitive market. d. What would happen to price and output if the Greeksdecided to charge the manufacturer a royalty fee of $3 per ring?arrow_forward3. Based on the best available econometric estimates, the market elasticity of demandfor your firm’s product is -2. The marginal cost of producing your product is constant at $50. a. What is your optimal per unit price if you are a monopolist?b. What is your optimal per unit price if you compete against one other firm in a Cournotoligopoly? What is your optimal per unit price if you compete against 20 other firms in aCournot oligopoly?c. What price pattern are you seeing between parts a and b? Explain why this makes intuitivesense (hint: at what price will you eventually sell your product if the number of firmscontinues to increase?).d. Suppose once again you are a monopolist, but your product sells to two different groups ofconsumers segmented by region. The east coast customers have demand elasticity equal towhat is shown above (-2) and your west coast customers have demand elasticity equal to -4.Determine the optimal prices under third-degree price discrimination. What conditions…arrow_forward10-3 Explain why predicting oligopoly behavior is so difficult6. (Price Leadership) Why might a price-leadership model of oligopoly not be an effective means of collusion in an oligopoly?arrow_forward
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