Exploring Microeconomics
8th Edition
ISBN: 9781544339443
Author: Sexton, Robert L.
Publisher: Sage Publications, Inc., Corwin, Cq Press,
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Question
Chapter 13, Problem 12P
To determine
To compute:
The profit maximizing level of output.
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Using a simple diagram, illustrate how the monopolist can
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why do perfectly competitive firms maximize their profits by producing so that the price is equal to marginal cost, but monopolists maximize their profits by setting a price that is greater than marginal cost?
Chapter 13 Solutions
Exploring Microeconomics
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Similar questions
- Use the following Table showing the demand schedule for a monopolist facing a constant marginal cost of $4. Assume that the firm pays no fixed costs. How many units of output will the firm produce, and how much economic profit will be earned? Quantity Demanded 1 2 3 4 5 6 7 8 9 Price $12 $11 $10 $9 $8 $7 $6 $5 $4 A) 5 units; $8 B) 5 units; $40 C) 7 units; $36 D) 7 units; -$6 E) 5 units; $20arrow_forwardUsing (or replicating) the graph below, indicate the monopolist's equilibrium price and quantity. Where would the perfectly competitive firm produce? What is the welfare loss (deadweight loss) associated with this monopoly market? $100 $70 $40 30 Marginal Revenue 60 Marginal Cost Demandarrow_forwardConfused and not sure how to solve correctlyarrow_forward
- Consider a monopolistic business. What sort of demand curve does a monopolist face in contrast to a corporation that is fully competitive? What effects does the monopolist demand curve have on how prices and quantities are set?arrow_forwardThe diagram below shows a monopolist's marginal cost schedule and the demand curve. Find and depict the following items within the diagram and briefly explain how you found them: Price Monopoly Price Demand Marginal Revenue Total Surplus Quantity Maximising Quantity b) Draw a possible marginal cost curve for the monopolist into the diagram that is consistent with all the other curves that are already given. c) Based on the marginal cost curve that you constructed in part (b), find and highlight the monopolist's total costs at the monopoly price in the diagram. d) Briefly explain the shape of the marginal revenue curve as compared to the demand curve in the diagram.arrow_forwardTo maximize its profit, a monopolist will a. raise output as long as marginal revenue exceeds marginal cost. Use diagram to explain this condition b. produce the quantity less than the perfectly competitive level of output, and the monopoly price will be higher than the price under perfect competition. Use diagram to explain this conditionarrow_forward
- Only one firm produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: P=15−QP=15−Q Marginal Revenue: MR=15−2QMR=15−2Q Total Cost: TC=3+Q+0.5Q2TC=3+Q+0.5Q2 Marginal Cost: MC=3+QMC=3+Q where QQ is quantity and PP is the price measured in Wiknamian dollars. The monopolist produces ( ? ) soccer balls and sells them at a price of ($) each. The monopolist's profit is ($) in this case. One day, the King of Wiknam decrees that henceforth there will be free trade—either imports or exports—of soccer balls at the world price of $10. The firm is now a price taker in a competitive market. The domestic production of soccer balls will ( rise or fall ) ? to ( ? ) soccer balls, and domestic consumption will ( rise or fall ) to ( ? ) soccer balls. Therefore, Wiknam will (…arrow_forwardThe following graph gives the demand (D) curve for satellite TV services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local satellite TV company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. ? PRICE (Dollars per subscription) 100 90 80 70 20 10 0 + 0 2 MR True 6 8 10 12 14 QUANTITY (Number of subscriptions) 16 O False ATC MC 18 20 D Which of the following statements are true about this natural monopoly? Check all that apply. Monopoly Outcome In order for a monopoly to exist in this case, the government must have intervened and created it. The satellite TV company is experiencing economies of scale. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. The satellite TV company…arrow_forward
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