Answered: 9-2 Distinguish marginal revenue and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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9-2 Distinguish marginal revenue and average revenue for a monopolist and explain why marginal revenue is less than average revenue
3. (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 monopoly
rather than by a competitive market.

d. What would happen to price and output if the Greeks
decided to charge the manufacturer a royalty fee of $3 per ring?

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