The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?

The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Dana is a dot-com entrepreneur who has established a Web site at which people can design and buy awatch. Dana pays $200 a month for a Web server and Internet connection. The watches that customers design are made to order by another firm, and Dana pays this firm $60 a watch. Dana has no other costs. The table shows the demand schedule for Dana's watches. What is Dana's profit-maximizing output, price, and economic profit? Dana's profit-maximizing output is Dana's profit-maximizing price is $ Dana's economic profit is $ a month. watches a month. a watch. Price (dollars per watch) 100 80 60 40 20 0 Quantity (watches per month) 0 20 40 60 80 100
Total Revenue $5,000 per Week $2,600 per Week $2,400 per Week Total Variable Cost Total Fixed Cost Let us suppose Harry's, a local supplier of chill and pizza, has the revenue and cost structure shown here. Multiple Choice Harry's should stay open in the short run. Harry's should shut down in the long run. Harry's should shut down in the short run. Harry's should stay open in the short run but shut down in the long run.
Henry Potter owns the only well in town that produces clean drinking water. He faces the following demand, marginal revenue, and marginal cost curves:Demand: P = 70 – QMarginal revenue: MR = 70 – 2QMarginal cost: MC = 10 + Qa) Graph these three curves. Assuming that Mr. Potter maximizes profit, what quantity does he produce? What price does he charge? Show these results on your graph.b) Mayor George Bailey, concerned about water consumers, is considering a price ceiling that is 10 percent below the monopoly price derived in part (a). What quantity would be demanded at this new price? Would the profit-maximizing Mr. Potter produce that amount? Explain. (Hint: Think about marginal cost.)c) George’s Uncle Billy says that a price ceiling is a bad idea because price ceilings cause shortages. Is he right in thiscase? What size shortage would the price ceiling create? Explain.d) George’s friend Clarence, who is even more concerned about consumers, suggests a price ceiling 50 percent below…
Andrea's Day Spa began to offer a relaxing aromatherapy treatment. The firm asks you how much to charge to maximize profits. The demand curve for the treatments is given by the first two columns in the following table; its total costs are given in the third column. For each level of output, calculate total revenue, marginal revenue, average cost, and marginal cost. What is the profit-maximizing level of output for the treatments and how much will the firm earn in profits? Price $25.00 0 $24.00 $23.00 Quantity TC $21.60 10 $22.50 30 $21.20 20 $22.00 40 50 60 $130 $275 $435 $610 $800 $1,005 $1,225 Total revenue Marginal revenue Average cost Marginal cost
The makers of Panax pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic paracetamol do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Panax and generic paracetamol are the same and constant. 1. Draw a diagram showing Panax’s demand, marginal revenue and marginal cost curves. Label Panax’s price and mark-up over marginal cost. 2. Repeat part (1) for a producer of generic paracetamol. How do the diagrams differ? Which company has the bigger mark-up? Explain. 3. What factors would affect the extent to which the makers of Panax could engage in predatory or destroyer pricing to force out competitors in this market?
On the following graph, use the orange points (square symbol) to plot points along the portion of the firm's short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot the points in order from left to right, starting with the point closest to the origin. You are given more points to plot than you need.) PRICE (Dollars per lamp) 100 8 8 70 50 30 20 10 0 PRICE (Dollars per lamp) 90 Suppose there are 5 firms in this industry, each of which has the cost curves previously shown. 100 Demand 80 10 70 20 30 50 60 70 QUANTITY (Thousands of lamps) On the following graph, use the orange points (square symbol) to plot points along the portion of the industry's short-run supply curve that corresponds to prices where there is positive output. (Note: For the graphing tool to grade correctly, you must plot these points in order from left to right, starting with the point closest to the origin. You are given more…
PTICE and COST $40 30 23 20 10 MC ATC ATC MR AR=D 150 200 Quantity per day 0:13 Question 11 (10 points) (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' Before the innovation reduced the cost, the firm's maximum economic profit was: $0. $30. $750. $4,500.
Answer choices are first blank: negative, positive, zero second blank: an equal number of, fewer, more
3.3
The table below depicts the prices and total costs a local used-book store faces. The bookstore competes with a number of similar stores, but it capitalizes on its location and the word-of-mouth reputation of the coffee it serves to its customers. Calculate the store's total revenue, total profit, marginal revenue, and marginal cost at each level of output, beginning with the first unit (Enter all values rounded to the nearest penny.) Total Price per Book (S) Costs ($) Total Total Marginal Revenue (S) Marginal Cost ($) Revenue ($) Profit (S) - 4 Output 5.75 4.00 1 5.50 7.25 5.5 - 1.75 5.5 3.25 2 5.25 9.50 10.5 1 2.25 3 5.00 11.60 15 3.4 4.5 2.1 4 4.75 14.10 19 4.9 4 25 4.50 17.60 22.5 4.9 3.5 3.5 6 4.25 21.75 25.5 3.75 3 4.15 7 4.00 26.50 28 1.5 2.5 4.75 Based on marginal analysis, what is the approximate profit-maximizing level of output for this business?
Problem 3 A furniture maker builds and sells wooden benches. The demand function for the benches is given by the function p = 1600 -x where p is the price per bench and x is the number of benches sold. The furniture maker also knows that the fixed costs for the business are $20,000 and each bench costs $75 to make. Part a) Create a function that represents revenue as a function of the number of benches produced and create a function that represents the cost as a function of the number of benches produced. Make sure to label your input and output variables. Part b) How many benches should be produced and sold in order to maximize revenue? What price should the furniture maker sell them? (Make sure to show your work) Part c) How many benches should be produced and sold in order to maximize profit? What is the maximum profit? (Make sure to show your work)
Calculate Iyana's marginal revenue and marginal cost for the first seven rompers they produce, and plot them on the following graph. Use the blue points (circle symbol) to plot marginal revenue and the orange points (square symbol) to plot marginal cost at each quantity. COSTS AND REVENUE (Dollars per romper) 40 35 30 25 20 15 10 0 0 1 2 3 4 5 6 7 8 QUANTITY (Rompers) Marginal Revenue Marginal Cost ? Iyana's profit is maximized when they produce a total of is $ , an amount rompers. At this quantity, the marginal cost of the final romper they produce than the price received for each romper they sell. At this point, the marginal cost of producing one more romper (the first romper beyond the profit maximizing quantity) is $ , an amount than the price received for each romper they sell. Therefore, Iyana's profit-maximizing quantity occurs at the point of intersection between the Because Iyana is a price taker, the previous condition is equivalent to curves.