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24-6. Referring to the accompanying diagram, answer the following questions. a. What is monopolist's profit-maximizing output? b. At the profit-maximizing output rate, what are the monopolist's average total cost and average revenue? c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue? d. What is the maximum profit? Dollars per Unit 8.00 6.00 5.00 4.50 3.00 MR 5,000 8,000 MC Units per Period ATC

24-6. Referring to the accompanying diagram, answer the following questions. a. What is monopolist's profit-maximizing output? b. At the profit-maximizing output rate, what are the monopolist's average total cost and average revenue? c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue? d. What is the maximum profit? Dollars per Unit 8.00 6.00 5.00 4.50 3.00 MR 5,000 8,000 MC Units per Period ATC

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Key Terms and Concepts cartel (588) monopolist (585) natural monopoly (586) Problems 24-1. An international coffee cartel has established a price above the perfectly competitive price. The number of countries not in the cartel has grown in recent years, however. Explain the likely effect of this trend on the prospects for maintaining a successful cartel. 24-2. Discuss the difference in the price elasticity of demand for an individual firm in a perfectly competitive indus- try as compared with a monopolist. Explain, in eco- nomic terms, why the price elasticities are different. 24-3. The following table depicts the daily output, price, and costs of the only dry cleaner located near the cam- pus of a small college town in a remote location. The dry cleaner is effectively a monopolist. Output (suits cleaned) 0 2 3 4 5 6 7 8 a. Compute revenues and profits at each output level. b. What is the profit-maximizing level of output? price differentiation (599) price discrimination (598) Price per Suit ($) 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 Total Costs ($) 3.00 6.00 8.50 10.50 11.50 13.50 16.00 19.00 24.00 24-4. Given the information in Problem 24-3, calculate the dry cleaner's marginal revenue and marginal cost at each output level. Based on marginal analysis, what is the profit-maximizing level of output? 24-5. A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be max- imizing its economic profits. Is this argument correct? Dollars per Unit 24-6. Referring to the accompanying diagram, answer the following questions. 8.00 a. What is monopolist's profit-maximizing output? b. At the profit-maximizing output rate, what are the monopolist's average total cost and average revenue? c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue? d. What is the maximum profit? 6.00 CHAPTER 24 Monopoly 5.00 4.50 price searcher (593) tariffs (588) 3.00 5,000 605 MR MC ATC 8,000 Units per Period 24-7. Using the diagram for Problem 24-6, suppose that the marginal cost and average total cost curves also illus- trate the horizontal summation of the firms in a com- petitive industry in the long run. What would the market price and equilibrium output be if the market were competitive? Explain the economic cost to soci- ety of allowing a monopoly to exist in this industry. 24-8. The marginal revenue curve of a monopoly producer crosses its marginal cost curve at $30 per unit, which corresponds to an output level of 2 million units. The price that consumers are willing and able to pay for this output is $40 per unit. If it produces this output level, the firm's average total cost is $43 per unit, and its average fixed cost is $8 per unit. What is this monopoly produc- er's profit-maximizing (loss-minimizing) output level? WHAT ARE THE FIRM'S ECONO- MIC PROFITS (OR ECONOMIC LOSSES? EXPLAIN
Transcribed Image Text:Key Terms and Concepts cartel (588) monopolist (585) natural monopoly (586) Problems 24-1. An international coffee cartel has established a price above the perfectly competitive price. The number of countries not in the cartel has grown in recent years, however. Explain the likely effect of this trend on the prospects for maintaining a successful cartel. 24-2. Discuss the difference in the price elasticity of demand for an individual firm in a perfectly competitive indus- try as compared with a monopolist. Explain, in eco- nomic terms, why the price elasticities are different. 24-3. The following table depicts the daily output, price, and costs of the only dry cleaner located near the cam- pus of a small college town in a remote location. The dry cleaner is effectively a monopolist. Output (suits cleaned) 0 2 3 4 5 6 7 8 a. Compute revenues and profits at each output level. b. What is the profit-maximizing level of output? price differentiation (599) price discrimination (598) Price per Suit ($) 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 Total Costs ($) 3.00 6.00 8.50 10.50 11.50 13.50 16.00 19.00 24.00 24-4. Given the information in Problem 24-3, calculate the dry cleaner's marginal revenue and marginal cost at each output level. Based on marginal analysis, what is the profit-maximizing level of output? 24-5. A manager of a monopoly firm notices that the firm is producing output at a rate at which average total cost is falling but is not at its minimum feasible point. The manager argues that surely the firm must not be max- imizing its economic profits. Is this argument correct? Dollars per Unit 24-6. Referring to the accompanying diagram, answer the following questions. 8.00 a. What is monopolist's profit-maximizing output? b. At the profit-maximizing output rate, what are the monopolist's average total cost and average revenue? c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue? d. What is the maximum profit? 6.00 CHAPTER 24 Monopoly 5.00 4.50 price searcher (593) tariffs (588) 3.00 5,000 605 MR MC ATC 8,000 Units per Period 24-7. Using the diagram for Problem 24-6, suppose that the marginal cost and average total cost curves also illus- trate the horizontal summation of the firms in a com- petitive industry in the long run. What would the market price and equilibrium output be if the market were competitive? Explain the economic cost to soci- ety of allowing a monopoly to exist in this industry. 24-8. The marginal revenue curve of a monopoly producer crosses its marginal cost curve at $30 per unit, which corresponds to an output level of 2 million units. The price that consumers are willing and able to pay for this output is $40 per unit. If it produces this output level, the firm's average total cost is $43 per unit, and its average fixed cost is $8 per unit. What is this monopoly produc- er's profit-maximizing (loss-minimizing) output level? WHAT ARE THE FIRM'S ECONO- MIC PROFITS (OR ECONOMIC LOSSES? EXPLAIN
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