Microeconomics with Connect Access Card
20th Edition
ISBN: 9781259278556
Author: Campbell McConnell
Publisher: McGraw-Hill Education
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Chapter 19, Problem 7DQ
To determine
The Sherman and Clayton acts.
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Use 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?
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?
1.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. LO1
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- As 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_forward5. (a) Assume that two firms A and B are in different industries (like computer software and computer hardware). What impact will a merger between these two firms have on the number of firms in each industry after the merger? Please give an explanation. (b) Current automobile companies are facing a shortage of computers chips used in cars to run various parts of the car, and therefore supply of cars has decreased since a necessary part(s) is not available. If an auto company like General Motors (GM) decided to buy a chip manufacturing company to ensure that it did not face a chip shortage in the future, would such a purchase lead to more concentration in either the auto industry or the chip-manufacturing industry? Please give an explanationexplanation.arrow_forward9. Suppose Warner Music and Universal Music are in a duopoly and currently limit themselves to 10 new artists per year. One artist sells 2 million songs at $1.25 per song. However, each label is capable of signing 20 artists per year. If one label increases the number of artists to 20 and the other stays the same, the price per song drops to $0.75, and each artist sells 3 million songs. If both labels increase the number of artists to 20, the price per song drops to $0.30, and each artist sells 4 million songs. Explain how revenue payoffs for each scenario are calculated. If this game is played once, how many artists will each producer sign, and what will be the price of a song? If this game is played every year, how many artists will each producer sign, and what will be the price of a song?arrow_forward
- Suppose we have another firm known as the Sanda Corporation which makes a product known as "Delgados". Suppose that its FC=$2,000 and its TC=$5,000 and its AVC=$48. What is the ATC? O $20.50 O $70 O $80 O $100 O Not enough informationarrow_forward4. You are the manager of a firm that produces products X and Y at zero cost. Youknow that different types of consumers value your two products differently, but you are unable toidentify these consumers individually at the time of the sale. In particular, you know there arethree types of consumers (100 of each type) with the following valuations for the two products: Consumer Type Product X Product Y1 $90 $ 602 $70 $1403 $40 $160 a. What are your profits if you charge $40 for product X and $60 for product Y?b. What are your profits if you charge $90 for product X and $160 for product Y?c. What are your profits if you charge $150 for a bundle containing one unit of product X andone unit of product Y?d. What are your profits if you charge $210 for a bundle containing one unit of X and one unit ofY, but also sell the…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
- 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_forward9. Firms 1 and 2 are proposing to merge. They offer symmetrically differentiated products and have identical costs and, therefore, identical premerger prices. (Note that “symmetrically differentiated products” means that if they charge the same price, then they have the same demand.) The common premerger price for firms 1 and 2 is $90, and the common marginal cost is $60. If firm 1 were to raise its price to $100, we know that its demand would drop by 20 units and firm 2’s demand would rise by 5 units. a. Assume the merger would reduce marginal cost by 10 percent. Using UPP, is there reason to be concerned with the merger? b. Suppose the prospective merger partners want to convince the DOJ that the merger will not raise price. Using UPP, how large must they argue the efficiency is? c. Suppose there are improved estimates of firms’ demand functions and now we know that if firm 1 were to raise its price to $100, its demand would (still) drop by 20 units, but firm 2’s demand would rise by…arrow_forwardAt these levels of output the marginal revenue in the manufactured items market is and the marginal revenue in the semimanufactured raw materials market is . At these prices, the price elasticity of demand in the manufactured items market is and the the price elasticity of demand in the semimanufactured raw materials market is . (Hint: ED=PMR−P��=�MR−�) What are the total profits if the company is effectively able to charge different prices in the two markets? . If the company is required by law to charge the same per-ton rate to all users, the new profit-maximizing level of price and output are per ton and tons respectively. The total profits in this situation is .arrow_forward
- 7) Without regulation, an industry that is a natural monopoly will tend to have:a. higher prices than is efficient, especially if demand is elastic.b. higher prices than is efficient, especially if demand is inelastic.C. higher consumpton than is efficient, especially if demand is elastic.d. higher consumption than is efficient, especially if demand is inelastic.arrow_forwardft : 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_forward. (Requires calculus). In the model of a dominant firm, assume that the fringe supply curve is given by Q = -1 + 0.2P, where P is market price and Q is output. Demand is given by Q = 11 – P.What will price and output be if there is no dominant firm? Now assume that there is a dominant firm, whose marginal cost is constant at $6. Derive the residual demand curve that it faces and calculate its profit-maximizing output and price. highest bidder, but both the winning and losing bidders must pay her their bids. So if Jones bids $1 they pay a total of $3, but Jones gets the money, leaving him with a net gain of $98 and Smith with -$1. If both bid the same amount, the $100 is split evenly between them. Assume that each of them has only two $1 bills on hand, leaving three possible bids: $0, $1 or $2. Write out the payoff matrix for this game, and then find its Nash equilibrium.arrow_forward
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