Concept explainers
The difference between
Explanation of Solution
Both the productive and allocative efficiencies can only be seen in the perfectly competitive market, where the industry’s
Perfectly competitive market: A perfectly competitive market is a market structure where there are many buyers and sellers, and there are identical products in the market.
Monopoly: Monopoly refers to a market structure with the features of a single seller and more buyers. The firms have full control over the market.
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Chapter 23 Solutions
Economics (MindTap Course List)
- Promoters of a major college basketball tournament estimate that the demand for tickets by adults is QA = 5,000 - 10P and the demand for tickets by students is QS = 10,000 - 100P. The marginal cost and average total cost of seating an additional spectator is constant, MC = $10, The promoters want to segment the market and charge adults and students different prices. What is the profit maximizing ticket price for students?arrow_forwardThe Canadian retail market for roasted whole coffee beans is dominated by two firms: Tim Hortons (T) and Kicking Horse (K). The market demand function is given by P(Q)=64−0.5Q. Assume it is possible to produce partial units of output. Kicking Horse's marginal cost for each kg of roasted coffee beans is $3. Tim Horton's marginal cost for each kg of roasted coffee beans is $5 (although they've been around longer than Kicking Horse, they've only recently expanded their product line for consumers to brew their own coffee at home). What is the Cournot market equilibrium (P and Q)?arrow_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_forward
- Assume there is no price discrimination: Matthew, Rachel, Janice, and Mandy own the only ice company in town (they have a monopoly on the ice market). Matthew wants to sell as much ice as possible without losing money. Rachel wants the ice company to bring in as much revenue as possible. Janice wants to maximize total surplus and Many wants to make the largest possible profit. Use ONE clearly-labelled graph of the ice company’s marginal revenue, demand, and cost curves to show the price and quantity (i.e., ice) each person desires. Provide explanation.arrow_forwardThe Canadian retail market for roasted whole coffee beans is dominated by two firms: Tim Hortons (T) and Kicking Horse (K). The market demand function is given by P(Q) = 64 – 0.5Q. Assume it is possible to produce partial units of output. • Kicking Horse's marginal cost for each kg of roasted coffee beans is $3. • Tim Horton's marginal cost for each kg of roasted coffee beans is $5 (although they've been around longer than Kicking Horse, they've only recently expanded their product line for consumers to brew their own coffee at home). What is the Cournot market equilibrium (P and Q)?arrow_forwardConsider a monopolistically competitive firm that faces demand curve P=160-3Q and total cost curve TC=100+Q². If this firm is profit-maximizing, what is the value of the average total cost (ATC) evaluated at Q*? (note: I am not asking for total costs. It's the value you would mark on your graph when you plug Q* into the ATC curve).arrow_forward
- Based on Zangwill (1992). Murray Manufacturing runs a day shift and a night shift. Regardless of the number of units produced, the only production cost during a shift is a setup cost. It costs $8000 to run the day shift and $4500 to run the night shift. Demand for the next two days is as follows: day 1, 2000; night 1, 3000; day 2, 2000; night 2, 3000. It costs $1 per unit to hold a unit in inventory for a shift. a. Determine a production schedule that minimizes the sum of setup and inventory costs. All demand must be met on time. (Note: Not all shifts have to be run.) b. After listening to a seminar on the virtues of the Japanese theory of production, Murray has cut the setup cost of its day shift to $1000 per shift and the setup cost of its night shift to $3500 per shift. Now determine a production schedule that minimizes the sum of setup and inventory costs. All demand must be met on time. Show that the decrease in setup costs has actually raised the average inventory level. Is this…arrow_forwardConsider the weekly market for gyros in a popularneighborhood close to campus. Suppose this market is operating in long-run competitive equilibrium with many gyro vendors in the neighborhood, each offering basically the same gyros. Due to the structure of the market, the vendors act as price takers and each individual vendor has no market power. The following graph displays the supply (SMC) and demand (D) curves in the weekly market for gyros. Place the black point (plus symbol) on the graph to indicate the market price and quantity that will result from competition. (?) (0) 50 45 PRICE (Dollars per gro) 4.0 3.5 30 2.0 15 1.0 D 3.5 30 25 Now assume that one of the gyro vendors successfully petitions the neighborhood development board to obcain exclusive rights to sell gyros in the neighborhood. This firm buys up all the rest of the gyro food trucks in the area and begins to operate as a monopoly. Assume that this change does not affect demand and that the marginal cost curve of the new…arrow_forwardSuppose you are the marketing manager for Fruit of the Loom. An individual's inverse demand for Fruit of the Loom women's underwear is estimated to be P = 25 − 3Q (in cents). If the cost to Fruit of the Loom to produce an item of women's underwear is C(Q) = 1 + 4Q (in cents), compute the profit Fruit of the Loom will earn by charging the optimal block price. a. $108.50 b. $0.73 c. $1.37 d. $136.50arrow_forward
- The 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 What is the surplus enjoyed by the firm when it is the sole supplier of the medicine? OA. 590 OB. $180 OC. $30 OD. $60 Price/Cost (5) 10 1 10 20 30 40 MR Demand 50 60 70 80 90 Quantity (units)arrow_forwardEcotripper Enterprises is the sole producer of Sunblast solar-powered skateboards, “The green alternative”. Market demand for Sunblasts is given by the formula: P=120-0.5Q, where p is in $ per skateboard and Q in skateboards per week. Total costs, in $ per week, are given by: TC=100+20Q, and marginal cost (MC) equal 20. a.) Derive the marginal revenue function and calculate the profit-maximizing price, quantity sold and the profit. b.) If the government imposes a price ceiling of $ 65 per skateboard, what is the effect on the equilibrium and the values derived in a.)? c.) If the government wanted Ecotripper to produce the socially efficient quantity of skateboards, what price ceiling could it set in the short run? What would the result be in the long run? d.) If the government decided to set the price ceiling so that consumer surplus was maximized subject to Ecotripper earning zero profits, what would be the level of the price ceiling, the quantity sold and the consumer surplus?arrow_forwardInverse demand for aglets (the plastic wrap on the end of the shoelaces) is given by the expression: P=1-Q/20,000. Further suppose the the marginal cost of producing aglets is constant at $0.01. What are the equilibrium price and quantity in a competitive market? What are the equilibrium price and quantity as well as profit in monopolistic market? What is the deadweight loss?arrow_forward
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning