Wonopoly and natural resource prices
Suppose that a firm is the sole owner of a stock of a natural resource.
a. How should the analysis of the maximization of the discounted profits from selling this resource (Equation 17.63 be modified to take this fact into account?
b. Suppose that the demand for the resource in question had a constant elasticity form
c. How would the answer to Problem 17.7 be changed if the entire crude oil supply were owned by a single firm?
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Chapter 17 Solutions
Microeconomic Theory
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- The demand for Amazon 's Kindle e-reader can be approximated by q(p)=21e−0.01pmillionunitsperyear(50≤p≤400), where p is the price charged by Amazon. Obtain a formula for price elasticity of demand E, and calculate its value at the two endpoints of the given range of prices. Is the price that would maximize annual revenue within the range of prices shown? How would you know this without calculating that price?arrow_forwardCalculate the price elasticity, cross-price elasticity, and income elasticity of demand for cement. Explain these figures.arrow_forwardIn Example 2.8, we examined the effect of a 20-percent decline in copper demand on the price of copper, using the linear supply and demand curves developed in Section 2.6. Suppose the long-run price elasticity of copper demand were -0.80 instead of -0.50. Assuming, as before, that the equilibrium price and quantity are P* = $3 per pound and Q = 18 million metric tons per year, derive the linear demand curve consistent with the smaller elasticity. With a long-run price elasticity of -0.80, the linear demand curve is OA. Q=33.40-4.80P. OB. Q 32.40-6.80P. OC. Q=33.40+ 6.80P. OD. Q 32.40-4.80P. OE. Q=32.40 + 4.80P.arrow_forward
- Harding Enterprises has developed a new product called the “Quest Simulator (QS)”. The market demand for this product is given as follows: Q = 240 - 4P. If QS is priced at $40, what is the point price elasticity of demand? Is demand elastic or inelastic? What is the maximum amount that consumers are willing to pay for the quantity demanded at the price of $40? (hint: it includes both the total expenditures and the consumer surplus) If the price of QS is increased slightly from $40, what will happen to the total expenditure on the product? What will happen to the consumer surplus? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardThe market research conducted by a firm in the drinking water industry shows that the demand for water has a constant elasticity equal to − 1/? where ? is 9 a) Express the demand function in the form of a differential equation b, Find the general solution for the differential equation by expressing Q (the quantity demanded) as a function of P (the product price). c, ) Suppose that the demand for bananas has a constant elasticity equal to – 9. Explain in words (without providing any calculation) how decreasing the price would affect a banana seller’s total revenue and profits. Please help me. Thank you so much.arrow_forwardYou would like to control the total consumption of soft drink up to 100 bottles per year. The current two brands you drink are Pepsi and Coke. The current demand, price, elasticity, and minimum demand for Pepsi and Coke are given in below. In addition, you would like to keep equal or more demand from Pepsi due to brand loyalty. Assuming linear demand curves, what are the best price for Pepsi and Coke that can minimize your total payment? Elasticity Current price Demand Minimum demand Keep Pepsi income > = 60% of total payment Pepsi 2 2 300 20 Coke 1 3.5 220 25arrow_forward
- The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomac’s closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. a. What is the arc cross elasticity of demand between Potomac’s oven and the competitive Spring City model? b. Would you say that these two firms are very close competitors? What other factors could have influenced the observed relationship? c. If Potomac knows that the arc price elasticity of demand for its ovens is −3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?arrow_forwardSmooth Sailing, Inc., has estimated the demand function for its sailboats (quantity purchased annually) as follows: = 89, 830 – 40P, + 20PX + 15P, + 21 + 0.001A + 10W Where, QD = quantity purchased, Ps = the price of smooth sailing sailboats, Px= the price of Company X's sailboat, Pr= the price of Company Y's motorboat, I= per capita income in dollars, A = dollars spent on advertising, and W = number of favorable days of weather in the southern region of the United States. a) Suppose that Ps = $9,000, Px = $9,500, Pr = $10,000, I = $15,000, A = $170,000, and W = 160. Find the price elasticity of demand at that point. b) Is E, elastic, inelastic, or unitary elastic in part (a)? Justify?arrow_forwardAnswer only subpart 4arrow_forward
- Managerial Economics: Applications, Strategies an...EconomicsISBN:9781305506381Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. HarrisPublisher:Cengage Learning
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