Answered: Refer to the graph above for a pure…

Refer to the graph above for a pure monopolist: The total profit (loss) for this monopolist is: O ($525) O $100 $525 $175

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7. You are a drug smuggler. Your profit depends on how many bales of marijuana (M) and blocks of cocaine (C) you can smuggle into the country. Specifically, your profit function can be expressed as: T= 720C2C² + 480M - 3M² + MC - 5000 A. Find the unconstrained solution for how much of each kind of drug you should smuggle. Now suppose that you are constrained in your choice by the capacity of the secret compartment in your plane. It can only fit 200 cubic feet of drugs, and each M takes up 2 cubic feet, and each C takes up I cubic foot. B. Construct a math expression for the constraint. C. Construct the Lagrangian function for this problem. D. Find the optimal constrained amounts. Decimals/fractions are fine, if it turns out that way. E. If you could increase the capacity by one unit for $400, should you do it? Explain.
According to the textbook, which of the following statements is (are) correct? (x) As new firms enter a monopolistically competitive market, product diversity in the market increases, however, profits of existing firms decrease since demand for the products of those firms decreases as they lose customers to the new entering firms. (y) The product-variety externality associated with monopolistic competition arises because in markets that are monopolistically competitive markets, firms try to differentiate their products. (z) When the loss from a business-stealing externality exceeds the gain from a product-variety externality, there are likely to be too many firms in a monopolistically competitive market.
2. Suppose the home country open up to free trade and a foreign competitor enters the market. Assume thatthe foreign firm has the same cost structure as the home firm (the monopoly from the previous question). The demand for its product is given by the inverse demand function: P = 120 −QD. The company’s costs are: T C = 20Q+ 200 and MC = $20A) Derive the best response function for each firm (h-home and f-foreign)B) Find each firms’ output, the home market price, and each firms’ profit from the home market3. Now, suppose that in addition to the home country opening up to free trade, the foreign country has alsoopened up to free trade. As a result, both firms sell their product in both markets.A) Find each firms’ overall output, market price in each market, and each firms’ overall profitB) Explain what effect free trade has (relative to no trade) on the firms and consumers
6. The total cost curve for firms in a natural monopoly is estimated to be: TC = 2Q3 – 100Q² + 10000Q The government has a desired industry output of 100. What is the minimum efficient scale in this industry? O 5% O 10% O 12.5% O 25% O 50%
2. Refer to the following graph to answer Question #1 40 35 30 25 20 16 15 12 10 5 I 10 20 MC ATC P₁ AVC P₂ P3 30 45 50 60 70 80 90 100 110 a) What is profit if the price is P1? b) What is profit if the price is P2? c) What is the profit maximizing level of output if the price falls to P3?
9. Problems and Applications Q3 Johnny Rockabilly has just finished recording his latest CD. His record company can produce the CD with no fixed cost and a variable cost of $5 per CD. The company's marketing department determines that the demand for the CD is as follows: Complete the following table by computing total revenue for each quantity listed and marginal revenue for each 10,000 increase in the quantity sold. Marginal Revenue (Dollars) Price (Dollars) 24 22 20 18 16 14 Number of CDs 10,000 20,000 30,000 40,000 50,000 60,000 Total Revenue (Dollars) AAAAA Profit is maximized at a quantity of 40,000 CDs and a price of $18 This results in a profit of If you were Johnny's agent, you would advise Johnny to demand a recording fee of $700,000 from the record company.
21) In Figure 5.5, what profit would the monopolist earn? P P4 P3 P2 P₁ MR Q* MC AVC D Figure 5.5 A) zero profit, because it would shut down. B) a positive profit. C) a loss less than its total fixed cost. D) a loss greater than its total fixed cost. ECON 2003: 1 ATC
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3. An industry is subject to agglomeration economies (and diseconomies). The profit per firm is £100 for an isolated firm, and increases to a maximum of £160 per firm in a cluster with 6 firms. The profit curve is linear, with a slope of +£12 in the positively-sloped part and -£10 in the negatively-sloped part. Illustrate this profit curve. What will be the equilibrium number of firms in the cluster and how much profit will each firm make? Will this be greater than the efficient number of firms? Explain why. How will an increase in transport costs affect the profit curve and the optimal cluster size? Briefly explain your answer.
3. Suppose the minimum efficient scale of an industry is at 100 units of output. At this point, average cost equals 50. Inverse demand for this industry is: P(Q) = A - Q a) What range of values should A take on in order for this industry to exhibit the structure of a natural monopoly? b) At what value of A the industry in part (b) stops being a natural monopoly?
5. Suppose a company has a monopoly on a game called Monopoly and faces a demand curve given by QT = 100-P and a marginal revenue function given by MR = 100 - 2QT where QT equals the combined total number of games produced per hour in the company's two factories (QT = 91 + 92). If factory 1 has a marginal cost function given by MC₁ = q1-5 and factory 2 has a marginal cost function given by MC2 = 0.5q25, how much total output will the company choose to produce and how will it distribute this production between its two factories in order to maximize profits?
2 (a) In New Keynesian Model with monopolistic competition, the profit function is given by: Il; = P;Y; – W[kY; + F]. where P is the price of firm j, Y is the marketable output of firm j, W is nominal wage, k is the (constant) marginal labour requirement, F is fixed cost in terms of units of labor. Derive the aggregate profit function in monopolistic competition by relating the aggregate profit income (P) to aggregate spending (PY) and firm's outlays on overhead labor (WNF) where Wk = Pjlµ and 1-1/µ = 1/0.