Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 13, Problem 2.10P
To determine
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1. Which of the following companies most closely resembles a monopoly?
Walmart
Microsoft
Starbucks
McDonald's
Question Source: Chiang 4e - Economics Princip
39
36
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In advertising, a business is not only making consumers aware of the existence of the product and its positive features but is purposely trying to persuade consumers to purchase the product. As a piece of economics which of the following best characterises what advertisers are trying to do?
(a) Shift the demand curve to the right and make it more income elastic;
(b) Shift the demand curve to the right and make it less income elastic;
(c) Shift the demand curve to the right and make it less price elastic;
(d) Shift the demand curve to the right and make it more price elastic.
Does a monopolist have a supply curve? Explain your answer.
What are the different types of price discrimination?
Differentiate between an oligopoly and a monopolistic competition (i.e. number of firms and the degree of product
differentiation).
How are skilled and unskilled workers in an economy likely to be affected if the firms adopt skill-biased
technologies?
Chapter 13 Solutions
Principles of Economics (12th Edition)
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- Consider the local music scene in your area. Name some of the local live bands that play in clubs and music halls, both on and off-campus. Look in your local newspaper for advertisements for upcoming shows or performances. How would you characterize the market for local musicians? Is there product differentiation? In what specific ways do firms (individual performers or bands) compete? To what degree are they able to exercise market power? Are there barriers to entry? How profitable do you think the musicians are?arrow_forwardName-Brand Prescription Drugs Market—“Happy Pill”—that greatly improves life but is not essential to life. Using supply and demand analysis, explain what happens to the market price and quantity of a name-brand prescription drug Happy Pill if its patent expires. Using supply and demand analysis explain why Happy Pill might be advertised. Using supply and demand analysis, explain what would happen to the price and quantity of Happy Pills if there was a severe recession, and people lost their jobs, which included a health-care benefit that payed for prescription drugs.arrow_forwardConsider monopolies such as local water or electric public utilities that are regulated by a government entity, often called a Public Utilities Commission. What are the ways in which these companies are regulated? What are the reasons for granting monopoly power to the company? What are the advantages and disadvantages of doing so? Share your answers to these questions with your colleagues.arrow_forward
- Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would (DECREASE OR INCREASE) and total cost would(DECREASE OR INCREASE) . Therefore, a monopolist will (SOMETIMES, ALWAYS, NEVER) produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).arrow_forwardBased on the demand curve you showed in question 2 above, what is the minimum and maximum price you can charge for your product? This does not mean that you will, in fact, charge the minimum or maximum price. It simply gives you an idea of the range of prices your demand curve allows you to charge. What are the quantities corresponding to the minimum and maximum price? Please show your work and explain how you calculated these prices and quantities. The demand curve I showed in question 2: P-16-4Qarrow_forwardAndrew Carnegie's monopoly in steel was never as complete as John D. Rockefeller's monopoly in oil. But even after the breakup of Standard Oil in 1914, monopolies kept developing -- including more "natural" monopolies such as Microsoft and Facebook. Why does the government of the USA continue to attempt to break up monopolies? What is the economic rationale? A. Monpolies are inherently anti-consumer. B. Monpolies are a natural consequence of technoogical innovation, and are seen by some economists as evidence of the superiority of capitalism because the market rewards competition. C. Monopolies are problematic because of price-fixing, which is achieved mainly after they become established, not because of the aggressive competition required to out-compete rivals before market dominance is achieved. D. All the above.arrow_forward
- Suppose that your state is considering a law that would force all monopolies to charge no more than their average total costs (ATC) of production. Which of the following statements correctly explains to your legislator the pros and cons of this approach? Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the option once to place a check mark. For incorrect answer(s), click the option twice to empty the box. check all that apply Pro: this will increase the profit earned by the monopolist. Con: it is very hard to accurately determine what ATC truly is. Con: the monopolist will have an incentive to overstate costs. Pro: the monopolist will have an incentive to lower costs. Pro: this will reduce deadweight loss by increasing production quantity. Con: consumer surplus is reduced as producers will increase production and increase price.arrow_forwardMonopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, quantity would fall by a (LARGER AND SMALLER) percentage than the rise in price, causing profit to (DECREASE OR INCREASE) . Therefore, a monopolist will (ALWAYS, NEVER OR SOMETIMES) produce a quantity at which the demand curve is elastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).arrow_forwardMonopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…arrow_forward
- There are several hamburger shops around you. You are trying to find ways to make your hamburger shop the most successful hamburger shop in your area. What is at least one way you would differentiate your shop from others?arrow_forwardThe United States, France, and Italy are among the world's largest producers. To answer the following questions, assume that their markets are monopolistically competitive, and use the gravity equation with B =93 and n =1.25. GDP in 2005 ($bn) Distance from the United States (miles) 1,830 1,668 12,409 France 5,544 6,229 Italy United States a. Using the gravity equation, compare the expected level of trade between the United States and France and between the United States and Italy. b. The distance between Paris and Rome is 694 miles. Would you expect more French trade with Italy or with the United States? Explain what variable (i.e. country size or distance) drives your result.arrow_forwardYou are the manager of a monopolist that produces women shoes and faces a random marginal cost. The demand for women shoes is O = 1000 - 0.1P Marginal cost can be constant at either $60 with a probability of 50% or $40 with a probability of probability of 50%. Draw a graph and plot the demand for shoes. Derive the marginal revenue curve and plot it on the graph. Find the price and output that maximize profits. Find the firm's profits.arrow_forward
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