Economics For Today
10th Edition
ISBN: 9781337670654
Author: Tucker
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 14SQ
To determine
The profit maximizing
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume a monopoly firm is able to engage in perfect (or first degree) price discrimination and the
demand for the monopolist's product is given by the data in the chart. This firm will sell one unit of
output if it charges a price of $
. The firm can lower the price to $
to sell a second unit, which would result in total revenue equal to $
lower the price to $
The firm can
to sell a third unit, which would result in total revenue equal to $
to sell a fourth unit, which would
The firm can lower the price to $
result in total revenue equal to $
Price per unit
$20
16
12
8
4
0
Quantity Demanded
0
1
2345
A monopolist sells the same product at the same price into two different markets. The demand
for the product in market #1 is denoted D,(p) = 15 – p where p is the unit price. The demand
for the product in market #2 is given by D2(p) = 40 – 6p.
1. If the monopolist sets a price of $8 per unit, what is the total demand?
2. Explain why elasticity of total demand is not defined at a unit price of 20.
3
A monopolist serves a market with five potential buyers, each of whom would buy at most one piece of the monopolist’s good. Anna would be willing to pay up to £80 for it, Bob up to £90, Chloe up to £100, Dave up to £110 and Elizabeth up to £120. The monopolist’s variable cost function is given in below table.
a) Indicate in the table which price the monopolist would want to charge for each given quantity. b) Find the marginal revenue for each quantity. c) Find the monopolist’s profit maximising price under the assumption that he wants to produce anything at all. d) How large can the monopolist’s fixed costs be such that he still wants to start producing at all?
Chapter 9 Solutions
Economics For Today
Ch. 9.1 - Prob. 1GECh. 9.1 - Prob. 2GECh. 9.2 - Prob. 1YTECh. 9.4 - Prob. 1YTECh. 9 - Prob. 1SQPCh. 9 - Prob. 2SQPCh. 9 - Prob. 3SQPCh. 9 - Prob. 4SQPCh. 9 - Prob. 5SQPCh. 9 - Prob. 6SQP
Ch. 9 - Prob. 7SQPCh. 9 - Prob. 8SQPCh. 9 - Prob. 9SQPCh. 9 - Prob. 10SQPCh. 9 - Prob. 11SQPCh. 9 - Prob. 12SQPCh. 9 - Prob. 13SQPCh. 9 - Prob. 1SQCh. 9 - Prob. 2SQCh. 9 - Prob. 3SQCh. 9 - Prob. 4SQCh. 9 - Prob. 5SQCh. 9 - Prob. 6SQCh. 9 - Prob. 7SQCh. 9 - Prob. 8SQCh. 9 - Prob. 9SQCh. 9 - Prob. 10SQCh. 9 - Prob. 11SQCh. 9 - Prob. 12SQCh. 9 - Prob. 13SQCh. 9 - Prob. 14SQCh. 9 - Prob. 15SQCh. 9 - Prob. 16SQCh. 9 - Prob. 17SQCh. 9 - Prob. 18SQCh. 9 - Prob. 19SQCh. 9 - Prob. 20SQ
Knowledge Booster
Similar questions
- A monopolist is selling a product with a linear demand curve with a vertical intercept of P=10 dollars (a price above which no one will buy the product) and a horizontal intercept of 20 thousand (the amount people would consume of the product were free). The product has zero marginal cost of zero (e.g., downloadable software). The profit-maximizing monopolist will set a price equal to dollars, produce and sell a quantity of thousand units, and will earn revenue of thousand dollars.arrow_forwardQuestion 4 Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q₁ and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8. a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a two- part tariff that permits both consumers to stay in the market. Solve for each consumer's demand, fixed fee and monopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-part tariff. decides to serve both consumers. Solve for the equilibrium aggregate demand and price in market, demand of each consumer and the monopolist profit. c) Now assume the monopolist decides not to serve the low demand consumer. Solve for price, demand and monopolist profits. Is the monopolist better off as a result of eliminating the low-volume consumer from the market?arrow_forwardA monopolist produces an output level Q1 = 200 where marginal revenue is equal to marginal cost. At this output level, the price is P1 = $300 and the average total cost is ATC1 = $250. The monopolist has the following revenue and cost levels:• Marginal cost curve intersects the marginal revenue curve at $100.• Marginal revenue is $0 at Q2 = 400.• Marginal cost curve intersects the demand curve at P3 = $270 and Q3 = 320.1. Draw the graph for the monopolist (include ATC, D, MC, and MR curves). Label everything! 2. At this output of Q1 = 200, calculate total revenue (TR), total cost (TC), and profit. Show your work (formulas and calculations). 3. Let’s compare the monopoly outcome with the perfectly competitive outcome. In monopoly, the firm produces Q = ________ and charges a price P = $_______. If this was perfect competition, the market would produce Q = ________ and charge a price P = $_______. Which market is more efficient and why? (hint: economic welfare) Obs:…arrow_forward
- The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for a monopolist. Suppose that this monopolist cannot price discriminate. Place the grey point (star symbol) on the graph to indicate the profit-maximizing price and quantity for this monopolist. If the monopolist is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if the monopolist is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. PRICE AND COST (Dolars) 100 8 8 R 90 70 329222 50 10 0 0 10 MC 20 30 MR 60 50 QUANTITY 40 ATC 79 00 D 90 100 . Monopoly Outcome Profit Lossarrow_forwardQuestion 13 Assume a monopolist can prevent resale of its product and it has complete information about each one of its customers. Even though each customer has a different demand curve, the seller can identify each customer's demand curve before a purchase takes place. It faces the inverse market demand of P = 160 – 10Q with marginal cost of MC = 10 + 5Q. The producer surplus at the profit- maximizing result is S_ 500 400 200 Question 14 Assume a monopolist can prevent resale of its product and it has complete information about each one of its customers. Even though each customer has a different demand curve, the seller can identify each customer's demand curve before a purchase takes place. It faces the inverse market demand of P = 160 – 10Q with marginal cost of MC = 10 +5Q. The total surplus at the profit- %3D maximizing result is $ 500 400 200arrow_forwardThe following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per hundred cubic feet) 40 36 20 12 8 4 0 0 1 MR 8 2 3 4 5 6 7 QUANTITY (Hundreds of cubic feet) ATC MC 9 10 O True The water company is experiencing economies of scale. The water company is experiencing diseconomies of scale. The water company must own a scarce resource. O False D Which of the following statements are true about this natural monopoly? Check all that apply. + Monopoly Outcome (?) It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. True or False: Without government…arrow_forward
- The following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per hundred cubic feet) 40 36 32 28 24 20 0 0 1 2 3 5 6 7 8 QUANTITY (Hundreds of cubic feet) MR 4 True ATC MC O False 9 10 D The water company is experiencing economies of scale. Which of the following statements are true about this natural monopoly? Check all that apply. + Monopoly Outcome The water company must own a scarce resource. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. In order for a monopoly to exist in this case, the government must have intervened and created it.…arrow_forwardAll consumers are alike and each has an demand curve for a monopolist’s product of P=100-2Qd. The marginal cost of production is constant at MC = $10. Let the monopolist charge a price of $10 per unit purchased and a subscription fee of $2025 that must be paid by each purchaser. What is the amount of consumer’s surplus left over by this scheme?arrow_forwardSuppose a monopolist has the following cost function C(Q) = 40Q (with marginal cost MC = 40). Suppose it faces market demand of P = 100 - Q.< (a) Sketch market demand, marginal revenues, and marginal costs. Be neat.< (b) What is the monopolist's optimal level of output, price, and profits? Show your work.< (c) What is the deadweight loss (DWL) associated with the monopoly output? Show your work and explain why the DWL arises.< (d) (Cournot Competition) Now suppose we added a second firm that has identical costs to the monopolist. Show that the resulting Cournot Equilibrium has each firm producing output of 60 units. That is, show that, if the other firm sells 60 units, then the best a firm can do is also sell 60 units. (e) What are total profits under Cournot Competition compared to the Monopoly case? Why do they differ? (f) What happens to the deadweight loss under Cournot Competition relative to the Monopoly case? Explain why this happens.<arrow_forward
- A monopolist can produce at a constant marginal cost of $5 and a fixed cost of $55. It faces a market demand curve given by Q = 24- P/4. Demand: Q = 24 - P/4 Inverse Demand: P = 96-4Q Total Revenue (TR) = 96Q-4Q^2 Marginal Revenue (MR) = 96 - 8Q Marginal Cost (MC) = 5 Profit maximizing quantity of monopolist= 11.375 Profit maximizing price of monopolist= $50.5 Profit of monopolist= $ 517.5625 Suppose a competitive firm has the same constant marginal cost of £5. Find the profit maximising output for this firm. What is the price that the competitive firm must charge? The government decides to impose a new policy on this monopolist. In particular, the government wants to introduce price regulation such that the regulated price will consequently make this monopolist earns zero profit only. What is the regulated price that this monopolist should charge? How many quantities of output are produced with this new regulated price?arrow_forwardConsider a monopolist operating on a market with a downward sloping demand curve. The monopolist has a constant marginal cost and no fixed cost. At the current level of production and at the current price level, the price elasticity of demand is equal to -0.8. Assume the monopolist wishes to maximise profits. a) Would we be able to say anything about whether the monopolist has chosen a price and quantity that maximise profits? Explain your answer by means of diagrams (maximum 150 words). b) What is the price elasticity of supply in this market?arrow_forwardThe graph above shows the cost and revenue curves for a natural monopoly that provides electrical power to the town of Fanaland. If unregulated, the monopolist operates to maximize its profit. (a) Identify the monopolist’s profit-maximizing quantity and price. (b) Assume the town government of Fanaland regulates the monopolist’s price to achieve the allocatively efficient quantity. What price would the government set in order to achieve the allocatively efficient quantity? (c) Will producing the allocatively efficient quantity be economically feasible for the monopolist? Explain. (d) Suppose instead the town government wants to regulate the monopolist to earn zero economic profit. What price would the government set to have the monopolist earn zero economic profit? (e) Based on your answer to part (d), will the deadweight loss increase, decrease, or stay the same as that of the unregulated monopolist? Explain.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Microeconomics: Principles & PolicyEconomicsISBN:9781337794992Author:William J. Baumol, Alan S. Blinder, John L. SolowPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:9781337794992
Author:William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning