Microeconomics
11th Edition
ISBN: 9781260507041
Author: Colander, David
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 6QE
To determine
Identify the market structure that best characterizes the market for breakfast cereals.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Pizza Hut and Domino's are the leading pizza chains in terms of market share. If the price of Domino's rises significantly, all else equal, what impact will that have on Pizza Hut?
Pizza Hut's demand will shift left
Pizza Hut's demand will shift right
Pizza Hut's supply will shift left
Pizza Hut's supply will shift right
Mizuno Corporation produces and sells running shoes. The marketing division (the downstream
division) of Mizuno faces the following the direct market demand equation as follows:
Q = 392 – 2P,
where Q is the number of pairs of shoes and P is the price of a pair of shoes.
Production of each pair of shoes requires 1 square yard of leather. The leather is shaped and cut
by the Form division of Mizuno (the upstream division). The Form division’s only customer is
the marketing division.
The total cost function for leather is
TCU = 0.5QU2 +10 QU +2
where QU is the quantity of leather produced.
The total cost of assembling and selling shoes (excluding the leather) is
TCD = 2Q2 + 6Q + 4.
a) Write down the profit equations of downstream division, upstream division and total profits
b) Calculate the profit-maximizing quantity of shoes (Q*), quantity of leather (Qu)
and price of shoes (P*)
c) Determine the optimal transfer price (PU∗)
Mizuno Corporation produces and sells running shoes. The marketing division (the downstream division) of Mizuno faces the following the direct market demand equation as follows:Q = 392 – 2P,where Q is the number of pairs of shoes and P is the price of a pair of shoes.
Production of each pair of shoes requires 1 square yard of leather. The leather is shaped and cut by the Form division of Mizuno (the upstream division). The Form division’s only customer is the marketing division.
The total cost function for leather is
TCU=0.5Q2U+10QU+2,where QU is the quantity of leather produced.
The total cost of assembling and selling shoes (excluding the leather) isTCD = 2Q2 + 6Q + 4.
a) Write down the profit equations of downstream division (πD), upstream division (πU), and total profits (π). b) Calculate the profit-maximizing quantity of shoes (Q*), quantity of leather (Q*U ) and price of shoes (P*)c) Determine the optimal transfer price (P*U).d) Using the profit equations of your answer in a),…
Chapter 15 Solutions
Microeconomics
Ch. 15.1 - Prob. 1QCh. 15.1 - Prob. 2QCh. 15.1 - Prob. 3QCh. 15.1 - Prob. 4QCh. 15.1 - Prob. 5QCh. 15.1 - Prob. 6QCh. 15.1 - Prob. 7QCh. 15.1 - Prob. 8QCh. 15.1 - Prob. 9QCh. 15.1 - Prob. 10Q
Ch. 15 - Prob. 1QECh. 15 - Prob. 2QECh. 15 - Prob. 3QECh. 15 - Prob. 4QECh. 15 - Prob. 5QECh. 15 - Prob. 6QECh. 15 - Prob. 7QECh. 15 - Prob. 8QECh. 15 - Prob. 9QECh. 15 - Prob. 10QECh. 15 - Prob. 11QECh. 15 - Prob. 12QECh. 15 - Prob. 13QECh. 15 - Prob. 14QECh. 15 - Prob. 15QECh. 15 - Prob. 16QECh. 15 - Prob. 17QECh. 15 - Prob. 18QECh. 15 - Prob. 1QAPCh. 15 - Prob. 2QAPCh. 15 - Prob. 3QAPCh. 15 - Prob. 4QAPCh. 15 - Prob. 5QAPCh. 15 - Prob. 1IPCh. 15 - Prob. 2IPCh. 15 - Prob. 3IPCh. 15 - Prob. 4IPCh. 15 - Prob. 5IPCh. 15 - Prob. 6IPCh. 15 - Prob. 7IP
Knowledge Booster
Similar questions
- Mizuno Corporation produces and sells running shoes. The marketing division (the downstream division) of Mizuno faces the following the direct market demand equation as follows:Q = 392 – 2P,where Q is the number of pairs of shoes and P is the price of a pair of shoes. Production of each pair of shoes requires 1 square yard of leather. The leather is shaped and cut by the Form division of Mizuno (the upstream division). The Form division’s only customer is the marketing division. The total cost function for leather is TCU=0.5Q2U+10QU+2,where QU is the quantity of leather produced. The total cost of assembling and selling shoes (excluding the leather) isTCD = 2Q2 + 6Q + 4. a) Write down the profit equations of downstream division (πD), upstream division (πU), and total profits (π). b) Calculate the profit-maximizing quantity of shoes (Q*), quantity of leather (Q*U ) and price of shoes (P*)c) Determine the optimal transfer price (P*U).d) Using the profit equations of your answer in a),…arrow_forwardThe figure below illustrates the market for steel. If the steel market is competitive, firms can produce steel at a constant marginal cost of $100 per ton. Therefore, the price of steel is $100 per ton, and 100 tons are produced. Assume that if all the steel companies consolidate into a monopoly, the monopoly marginal cost will fall to $70 per ton. Use the straight line tool to draw the monopoly marginal revenue and marginal cost lines (extend the marginal cost line to 300 tons). Then use the plot point tool to plot the monopoly profit maximizing price and output on the demand curve. Part 2. If the market is competitive, total surplus is $ _________ Part 3. If the market is controlled by a monopoly, total surplus is $________arrow_forwardSuppose three firms compete in a homogeneous-product Cournot industry. The market elasticity of demand for the product is −2, and each firm’s marginal cost of production is $50. What is the profit-maximizing equilibrium price?arrow_forward
- A) Suppose there are just two firms, 1 and 2, in the oil market and the inverse demand for oil is given by P = 90 – 3Q. The marginal cost for each firm is €18. Calculate the level of output that each firm would produce at the Cournot equilibrium. B) Suppose there are just two firms, 1 and 2, in the oil market and the inverse demand for oil is given by P = 60 – Q. The marginal cost for each firm is €36. What price should Firm 1 charge at the Cournot equilibrium? C) Consider the production function Q = 10KL. Will the MRTS for this production function remain constant along the Q = 200 isoquant? Explain briefly.arrow_forwardGary's Gas and Frank's Fuel are the only two providers of gasoline in their town. Below is the demand schedule for the market of gasoline. Assume that the cost of producing gasoline is zero per gallon (AC-D0, FC-0). Suppose that the two producers collude (split production and profits evenly), what are the profits of each firm? Q demanded (in gallons) 4 6 7 8. 10 Market price (in dollar) $22 $20 $18 $16 $14 $12 $10 $8 $6 $0 $70 $72 O $36 O $76 $64 3. 2. 1,arrow_forwardThe figure shows the market demand curve for penicillin, an antibiotic medicine. Initially, the market was supplied by perfectly competitive firms. Later, the government granted the exclusive right to produce and sell penicillin to one firm. The figure also shows the marginal revenue curve (MR) of the firm once it begins to operate as a monopoly. The marginal cost is constant at $3. irrespective of the market structure. After the market changes from perfect competition to a monopoly.. OA. social surplus decreases OB. consumer surplus increases. OC. deadweight loss decreases OD. the market price decreases -COD- Price/Cost (5) 10 9 10 20 30 MR 40 60 00 Demand 70 BO so Quanety (units)arrow_forward
- Consider the market for cola soft drinks where Pepsi and Coke are dominating this market with well above 90% markets share combined. Under what market structure do Pepsi and Coke operate? What microeconomic model can best describe the behavior of Pepsi and Coke? Explain the main theme of this model. Given the obvious market share of both Pepsi and Coke, on what grounds would you justify the multibillion-dollar annual advertising spending by those two companies?arrow_forwardConsider an electricity market where there are three suppliers, each with constant marginal cost (a reasonable approximation in electricity generation). Firm 1 has a capacity of 200 at MC = 5. Firm 2 has a capacity of 100 at MC = 8. Firm 3 has a capacity of 100 at MC = 10. a. If the three firms are price takers (i.e., behave competitively), what is the industry supply curve? b. Compute the equilibrium price and quantity when the market demand is Q(P) = 1000/p0.s. %3D c. Compute the equilibrium price and quantity when the market demand is Q(P) = 750/p0.5. %3D d. Compute the equilibrium price and quantity when the market demand is Q(P) = 500/P0.5.arrow_forwardWhether in the case of clothes and cars or in the case of universities, producers spend a lot of money establishing their "brand names" because: Group of answer choices Brand names are established by driving out the competition, after which these companies charge monopoly prices. Government legislation raises the prices of brand named items with price controls, and people have no choice but to pay the higher price for brand name products. There are legal requirements for companies with brand names to spend a percentage of their budget on advertising. Brand names carry a reputation of better quality, and consumers will pay a higher price for brand names.arrow_forward
- Which of the following statements is true about the history of Southwest Airlines entering new markets? Multiple Choice Southwest’s entry caused the demand for each carrier to become more inelastic as customers increased their loyalty to particular airlines. Southwest’s entry into new markets had little impact on either the markets or airlines already serving those markets. Southwest’s low price strategy tapped into existing elastic demand in the market, increasing the airline’s revenue. Southwest’s highly inelastic supply made it difficult for them to take advantage of demand in the market.arrow_forwardDrug dealers purchase a drug at a constant marginal cost of $40 per unit. The drug is then sold in perfect competition. Suppose that rival gangs seize 50% of the drugs and resell them at the prevailing market price. What would be the effect of these gangs on the equilibrium market price? It would go up by $80 It would go up by $40 It would stay the same It would go down by $20 It would go up by $20arrow_forwardMany home improvement retailers like Home Depot and Lowe’s have low-price guarantee policies. At a minimum, these guarantees promise to match a rival’s price, and some promise to beat the lowest advertised price by a given percentage. Do these types of pricing strategies result in cutthroat Bertrand competition and zero economic profits? If not, why not? If so, suggest an alternative pricing strategy that will permit these firms to earn positive economic profits.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
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...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher: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
Managerial Economics: Applications, Strategies an...
Economics
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:Cengage Learning