Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the past decade. Its customers-spanning the gamut from cruise lines to freighters-use the product because it reduces their fuel bills. The annual (inverse) demand function for Barnacie's product is given by P= 450 -00, and Barnacle's cost function is given by a9 = 280Q Thanks to subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The federal government essentially pays for the plant and capital equipment required to make this energy-saving product. Absent this subsidy, Barnacle's fixed costs would be about $8 million annually. Knowing that the company's patent will soon expire, Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost. With interest rates at 5 percent, Marge is considering a limit-pricing strategy. What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place? Instructions: Enter your responses to the nearest penny (two decimal places). What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy? What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of output? Which strategy is more beneficial to Barnacle?
Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other particles from the hulls of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the past decade. Its customers-spanning the gamut from cruise lines to freighters-use the product because it reduces their fuel bills. The annual (inverse) demand function for Barnacie's product is given by P= 450 -00, and Barnacle's cost function is given by a9 = 280Q Thanks to subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The federal government essentially pays for the plant and capital equipment required to make this energy-saving product. Absent this subsidy, Barnacle's fixed costs would be about $8 million annually. Knowing that the company's patent will soon expire, Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at an identical cost. With interest rates at 5 percent, Marge is considering a limit-pricing strategy. What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place? Instructions: Enter your responses to the nearest penny (two decimal places). What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy? What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of output? Which strategy is more beneficial to Barnacle?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Barnacle Industries was awarded a patent over 15 years ago for a unique industrial strength cleaner that removes barnacles and other
particles from the hulis of ships. Thanks to its monopoly position, Barnacle has earned more than $160 million over the past decade. Its
customers-spanning the gamut from cruiselines to freighters-use the product because it reduces their fuel billis. The annual (inverse)
demand function for Barnacle's product is given by P= 450 -0Q, and Barnacle's cost function is given by qa) = 280Q Thanks to
subsidies stemming from an energy bill passed by Congress nearly two decades ago, Barnacle does not have any fixed costs: The
federal government essentially pays for the plant and capital equipment required to make this energy-saving product.
Absent this subsidy, Barnacle's fixed costs would be about $8 million annually. Knowing that the company's patent will soon expire,
Marge, Barnacle's manager, is concerned that entrants will qualify for the subsidy, enter the market, and produce a perfect substitute at
an identical cost. With interest rates at 5 percent, Marge is considering a limit-pricing strategy.
What would Barnacle's profits be if Marge pursues a limit-pricing strategy if the subsidy is in place?
ces
Instructions: Enter your responses to the nearest penny (two decimal places).
What would Barnacle's profits be if Marge convinces the government to eliminate the subsidy?
What would be the profit of a new entrant if the subsidy is eliminated and Barnacle continues to produce the monopoly level of
output?
Which strategy is more beneficial to Barnacle?
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