Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 2.4P
To determine
Marginal revenue schedule and profit maximizing output.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
You own a road resurfacing business called Dahyun Bricks services located in Seoul. You
are the only reservicing business in South Korea. Therefore, you have a local monopoly.
Your experience running the company for many years has taught you that market
demand for your service can be described by the demand function:
p = 20 - Q.
The cost function is c =q². Therefore, marginal cost equals 2q. Quantity refersto square
metre of road resurfacing. Note the Q denotes aggregate market demand and q denotes
your production. Of course, if you are the only supplier than q = Q.
a) Compute profit maximising price and output. Compute profits.
b) The monopoly profit that you have been earning has attracted attention
from another firm that will set up operations in South Koreaand
compete for market share. You are concerned with losing market share
and profit. So, you offer the potential entrant the following deal. Both
firms agree to maximise industry profits (joint profits). The potential
entrant…
A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What is the profit under monopoly?
The market demand function is represented by P =
10,070 -2Q. In this market demand function, Pand Q
represent the price level and output respectively. The
total cost function of firm(s) in this market can be
represented as TC = 50,000 + 0.3Q + 0.01Q2 in
which the relevant marginal cost function will be MC
= 0.3 + 0.02Q.
What will be the net market surplus under a
monopoly? The supply function is S = MC = 0.3 +
0.02Q.
Chapter 13 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
Similar questions
- Suppose the long-run marginal cost for a firm is given by MC= x^2 - 2x+5 , where x is the quantity supplied by the firm. Demand for the industry’s product is given by Q= 200-2p, where Q is quantity demanded and p is price. Consider two possibilities: (1) The industry is perfectly competitive ,or (2) the industry is an unnatural monopoly that operates at a single price. (a) What will the amounts of firm and industry output (x, Q) be under each form of industrial organization? (b) How much would a firm be willing to pay to obtain the right to act as a monopoly in this industry? Please show your work. (c) What is the dollar amount of deadweight loss from the monopoly? Please show work for each part.arrow_forwardYou are the manager of a monopoly, and your demand and cost functions are given by P = 300 – 3Q and C(Q) = 1,500 + 2Q2, respectively. What price-quantity combination maximizes your firm’s profits? Calculate the maximum profits. Is demand elastic, inelastic, or unit elastic at the profit-maximizing price-quantity combination? What price-quantity combination maximizes revenue? Calculate the maximum revenues? Is demand elastic, inelastic, or unit elastic at the revenue-maximizing price-quantity combination?arrow_forwardWaterker is the only company selling the gorgeous Perspective fountain pens. The cost to produce q pens is C(q) = 0.5q2 + 10. (In the long run, all costs are avoidable.) The demand for these incredible pens is given by p(g) = 132 - q/10. How much deadweight loss is generated by Waterker's monopoly on the Perspective? Enter a numerical value below. You may round to the second decimal if necessary.arrow_forward
- Waterker is the only company selling the gorgeous Perspective fountain pens. The cost to produce q pens is C(q) = 0.5q² + 10. (In the long run, all costs are avoidable.) The demand for these incredible pens is given by p(a) = 132 - q/10. How much deadweight loss is generated by Waterker's monopoly on the Perspective? Enter a numerical value below. You may round to the second decimal if necessary.arrow_forwardThe government is contemplating regulating the monopoly and forcing it to operate at the competitive solution. Please indicate graphically the resulting welfare gains to society (hint: the gains are equal to the deadweight loss of a monopoly). Explain your response briefly.arrow_forwardYou have been granted a monopoly in the avocado market. The market demand for avocados is Q = 2000 – 2P. Your cost structure is such that your total costs are TC = 1000+ 400Q. (limit: whatever needed) What is your profit maximizing price and quantity? Explain this in words and show it graphically. What are the profit, producer surplus and consumer surplus? The government is thinking about breaking your monopoly into ten identical firms and giving ownership to 10 random people. Correspondingly, each firm would have a fixed cost of $1000 and a marginal production cost of $400 per unit. In this perfectly competitive environment, what would be the equilibrium price and quantity? Explain this in words and show it graphically. What are the profit per firm, producer surplus and consumer surplus that correspond to your answer to part d)? How much would you be willing to pay to keep the government from taking your monopoly away? Explain.arrow_forward
- Kalamazoo Competition-Free Concrete (KCC) is a local monopolist of ready-mix concrete. Its annual demand function is Q* = 10,000 – 200P, where Pis the price, in dollars, of a cubic yard of concrete and Qis the number of cubic yards sold per year. Suppose that Kalamazoo's marginal cost is $20 per cubic yard and fixed costs are sunk. Instructions: Round your answers to 2 decimal places. a. What is the deadweight loss from monopoly pricing? b. Now suppose that fixed costs are avoidable and large enough such that the monopolist elects not to produce. What is the deadweight loss from the monopoly not producing? %24arrow_forwardBased on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD Demand :P =1000-10Q Total Revenue : TR=1000Q-10Q2 Marginal Revenue: MR=1000-20Q Marginal Cost: MC=100+10Q Where Q indicates the number of copies sold and P is the price in Ectenian dollasrs. a. Find the price and quantity that maximize the company's profit b. Find the price and quantity that would maximize social welfare c. Calculate the deadweight loss from monpoly. d. Suppose in addition to the costs above. the director of the film has to be paid. The company is considering four options i. a flat fee of 2000 Ectenian dollars ii. 50 percent of the profits. iii. 150 Ectenian dollars per unit sold iv. 50 percent of the revenue. For each option, calculate the profit-maximizing price and quantity. Which if any of these compensation schemes would alter the deadweight loss from monopoly. Explain.arrow_forwardSuppose a manager is faced with the following demand curve for a new software application in a monopoly market, Q = 200 - 50P and the short run total cost function is TC = 2Q + Q2 / 30 If the manager is able to maximize the firms' profit in this monopoly market, what is the total profit value?arrow_forward
- A profit-maximizing monopoly has two plants that it can use to produce its goods. The inverse demand function is P(Q) = 10 – 0.5Q. The two plants are identical, with each plant i having total cost function TCi(qi) = 1 + qi + 0.5qi2, for i=1,2. a. Fill in the blanks. Suppose the firm produces using both plants. Then, the firm will produce _____ units using plant 1, and _____ units using plant 2. It will sell each units at ____ dollars. Its total profit is _____. b. What is the monopoly’s profit if it produced 2.9 units using one plant and 3.1 units using the other?arrow_forwardConsider a market with a common demand function given by Q = 100 - 2P, where Q represents quantity and P represents price. The total cost function for firms in this market is TC=1000+ 50². a) For a monopoly, calculate the profit-maximizing price, quantity, consumer surplus, producer surplus, and deadweight loss. b) Compare the monopoly equilibrium to the equilibrium in perfect competition. Calculate the price, quantity, consumer surplus, producer surplus, and deadweight loss under perfect competition. c) Use a single graph to illustrate both the monopoly and perfect competition equilibriums. 4arrow_forwardYou are the manager of a monopoly. If the marginal cost of your product is $100 and the price elasticity of demand for your product is 3, then the markup of price over marginal cost you should set is equal to. (Round your answer to one decimal place.) (Round your answer to one decimal place.) If the price elasticity of demand is 6 rather than 3, the markup you should set is equal to Use your knowledge of the factors that affect the magnitude of the price elasticity of demand to explain the difference in the markups in your answers to the last two parts. O A. A smaller price elasticity of demand suggests that your good is a normal good, which allows you to set a higher markup. OB. A smaller price elasticity of demand suggests that there are many substitutes for your good, which allows you to set a higher markup. OC. A smaller price elasticity of demand suggests that there are few substitutes for a good, which allows you to set a higher markup. D. A smaller price elasticity of demand…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning