MICROECONOMICS (LL) W/ CONNECT
21st Edition
ISBN: 9781260923933
Author: McConnell
Publisher: MCG
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Chapter 21, Problem 1RQ
To determine
Whether the statement is true or false about the monopoly .
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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?
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?
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.
Chapter 21 Solutions
MICROECONOMICS (LL) W/ CONNECT
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- 11 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_forwardIn view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure 12.9. Assuming that a government subsidy might be used to cover any loss resulting from marginal-cost pricing, which pricing policy would you favor? Why? What problems might such a subsidy entail?arrow_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_forward
- Indicate whether the statement is TRUE, FALSE, or UNCERTAIN and explain why. 1. It is economically more efficient to have a monopolist that discriminates perfectlythan a monopolist that sets a single price. 2. If a monopsonist faces a perfectly elastic supply curve, there will be no deadweightloss relative to the competitive outcome 3. In a Cournot duopoly market, the two firms agree to produce half of the monopolyoutput level for that market and split the resulting profit. Since the monopoly profit is the highest profit that can be obtained, the two firms will always stick to that agreement even if it’s not legally (or in any other way) binding.arrow_forwardReference: Ref 11-2 (Exhibit: Profit Maximization for a Firm in Monopolistic Competition) Suppose that an innovation reduces a firm's fixed costs and reduces cost from ATC to ATC'. Suppose further that after the innovation reduced the cost to ATC', it costs a total of $18 per unit to produce 170 units per day. If the firm charges a price equal to marginal cost, total net profit will be: a. $1,190. b. $3,400. c. $1,700. d. $3,060. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.arrow_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
- 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_forward9-2 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_forwardLet the market demand curve be P = 70 - 2Q, and assume all sellers can produce at a constant marginal cost of MC = 10, with zero fixed costs. a. If the market is controlled by a monopolist, what is the equilibrium price and quantity? How much profit does the monopolist earn? b. Now suppose that Amy and Beau compete as Cournot oligopolists. What is the Cournot equilibrium quantity per seller, total market quantity, market price, and profit per seller? c. Now suppose Amy and Beau decide to collude and form a Monopoly. Amy produces half of the monopoly output. Use the best response functions derived in part b. to determine Beau's best response. Does Beau optimally produce half the monopoly output? Based on this result, does it seem likely that the firms will be able to sustain collusion? Why or why not? Explain.arrow_forward
- 1.Suppose a second firm namely Pure Water Ltd enters the market. Let q1 be the output of Clear Water and q2 is the output of Pure Water. Market demand is thus now given by q1+q2 = 90 - P. Assuming Pure Water has the same costs as Clear Water. If each firm is to maximise its profits, taking its rival's output as given (i.e., behave as Cournot oligopolists): (i) Find the equilibrium quantities selected by each firm? (ii) Find the total output and what is the market price and profit for each firm? (iii) Why is the market (public) better off as under the monopolist in question (a)?arrow_forwardSuppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23 percent, 22 percent, 18 percent, 12 percent, 11 percent, 8 percent, and 6 percent. What is the four-firm concentration ratio of the hamburger industry in this town? What is the Herfindahl index for the hamburger industry in this town? If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl indexarrow_forward2. Suppose that the market demand for mountain spring water is given as follows: P = 1,200 - QMountain spring water can be produced at no cost. a. What is the profit maximizing level of output and price of a monopolist? b. What level of output would be produced by each firm in a Cournot duopoly in the long run? What will the price be? c. What will be the level of output and price in the long run if this industry were perfectly competitive?arrow_forward
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