FIU ECO2023 Assignment HW08 Chapter 14 spring 14

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Question and Exercise 14-2

Does a monopolist take market price as given? Why or why not?

Worksheet	Learning Objective: 14-01 Summarize how and why the decisions facing a monopolist differ from the collective decisions of competing firms.	288
Question and Exercise 14-2	Section: The Key Difference between a Monopolist and a Perfect Competitor

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Question and Exercise 14-7

a. Demonstrate graphically the profit-maximizing positions for a perfect competitor and a monopolist.

Instructions: On the following graph, use the tool 'Mono' to identify the profit-maximizing output and price for a monopolistic firm. Then use the tool 'PC' to identify the profit-maximizing output and price for a perfect competitor.

b. How do they differ?

The competitive price is the monopolistic price and the competitive output is the monopolistic output.

Graphing	Learning Objective: 14-02 Determine a monopolists price, output, and profit graphically and numerically.	289
Question and Exercise 14-7	Section: A Model of Monopoly

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Question and Exercise 14-8

True or false? Monopolists differ from perfect competitors because monopolists make a profit. Why?

Worksheet	Learning Objective: 14-02 Determine a monopolists price, output, and profit graphically and numerically.	289
Question and Exercise 14-8	Section: A Model of Monopoly

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Question and Exercise 14-9

A monopolist with a straight-line demand curve finds that it can sell two units at $12 each or 12 units at $2 each. Its marginal cost is constant at $3 per unit.

a. Given the demand curve, draw the MR, and MC curves for this monopolist.

Instructions: Use the tool 'MR' to draw the marginal revenue curve between the y-axis (price) intersection and the x-axis (quantity) intersection (2 points). Finally, use the tool 'MC' to draw the marginal cost curve between Q = 0 and Q = 15 (2 points).

b. At what output level would the monopolist produce?

Instructions: On the graph above, use the tool 'Mono' to identify the profit-maximizing output and price for a monopolistic firm.

c. At what output level would a perfectly competitive firm produce?

Instructions: On the graph above, use the tool 'PC' to identify the profit-maximizing output and price for a perfectly competitive firm.

Graphing	Learning Objective: 14-02 Determine a monopolists price, output, and profit graphically and numerically.	289
Question and Exercise 14-9	Section: A Model of Monopoly

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Question and Exercise 14-9 (algo)

A monopolist with a straight-line demand curve finds that it can sell one unit at $9 each or nine units at $1 each. Its marginal cost is constant at $2 per unit.

Part a not included in this question.

Instructions: Enter your answers as whole numbers.

b. A monopolist would produce unit(s) and charge $.

c. A perfect competitor would produce8 unit(s) and charge $

Worksheet	Learning Objective: 14-02 Determine a monopolists price, output, and profit graphically and numerically.	289
Question and Exercise 14-9 (algo)	Section: A Model of Monopoly

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Question and Exercise 14-10

Demonstrate the welfare loss created by a monopoly.

Instructions: Use the tool 'DWL' to identify the welfare loss created by a monopoly.

Graphing	Learning Objective: 14-03 Show graphically the welfare loss from monopoly.	295
Question and Exercise 14-10	Section: Welfare Loss from Monopoly

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Question and Exercise 14-11

Will the welfare loss from a monopolist with a perfectly elastic marginal cost curve be greater or less than the welfare loss from a monopolist with an upward-sloping marginal cost curve?

Worksheet	Learning Objective: 14-03 Show graphically the welfare loss from monopoly.	295
Question and Exercise 14-11	Section: Welfare Loss from Monopoly

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Question and Exercise 14-12

What three things must a firm be able to do to price-discriminate?

Instructions:You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

rev: 07_27_2013_QC_33121

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Question and Exercise 14-15

During the 2001 anthrax scare, the U.S. government threatened to disregard Bayer’s patent of ciprofloxacin, the most effective drug to fight anthrax, and license the production of the drug to American drug companies to stockpile the drug in case of an anthrax epidemic. While the policy would lower costs to the U.S. government of stockpiling the drug, it also would have other costs. What are those costs?

Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.

	Higher current welfare loss.
	Fewer new drugs will be invented.
	Increased sunk costs by the drug industry.
	Lost profit by Bayer.

rev: 07_27_2013_QC_33121

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Question and Exercise 14-16

Econocompany is under investigation by the U.S. Department of Justice for violating antitrust laws. The government decides that Econocompany has a natural monopoly and that, if it is to keep the government’s business, it must sell at a price equal to marginal cost. Econocompany says that it can’t do that and hires you to explain to the government why it can’t.

a. You do so in reference to the following graph.

b. What price would it charge if it were unregulated?



c. What price would you advise that it should be allowed to char

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Question and Exercise 14-17

What are the ways in which a firm can differentiate its product from that of its competitors? What is the overriding objective of product differentiation?

Worksheet	Learning Objective: 14-05 Explain how monopolistic competition differs from monopoly and perfect competition.	302
Question and Exercise 14-17	Section: Monopolistic Competition

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Question and Exercise 14-20

If a monopolistic competitor is able to restrict output, why doesn’t it earn economic profits?

Worksheet	Learning Objective: 14-05 Explain how monopolistic competition differs from monopoly and perfect competition.	302
Question and Exercise 14-20	Section: Monopolistic Competition

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Question and Exercise 14-21

You’re the manager of a firm that has constant marginal cost of $6. Fixed cost is zero. The market structure is monopolistically competitive. You’re faced with the demand curve in the following graph:

a. Determine graphically the profit-maximizing price and output for your firm in the short run. Demonstrate what profit or loss you’ll be making.

Instructions: Use the tool 'MR' to draw the marginal revenue curve (plot only the endpoints such that the first point touches the vertical axis and the last point touches the horizontal axis). Then use the tool 'MC' to draw the marginal cost curve between Q = 0 and Q = 700. Finally, use the tool 'P/L' to identify the profit or loss this firm is earning in the short run.

b. What happens in the long run?

In the long run, , causing this firm's demand curve to . This firm will earn in the long run.

Graphing	Learning Objective: 14-05 Explain how monopolistic competition differs from monopoly and perfect competition.	302
Question and Exercise 14-21	Section: Monopolistic Competition

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MC Qu. 209 If P = 3Qs + 3 represents market supply for a comp...

If P = 3Q_s + 3 represents market supply for a competitive industry and market demand is given by Q_d = 31 - 1/3 P, the equilibrium quantity is:

	10.
	15.
	20.
	48.

Equilibrium in a competitive market occurs at the point at which supply equals demand. Substituting for P in the market demand and equating Q_d and Q_s yields Q = 31 - (1/3) (3Q + 3). Solving for Q yields Q = 15.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 209 If P = 3Qs + 3 represents market supply for a comp...	Learning Objective: 14-A

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award:
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3.84 points

MC Qu. 210 If P = 3Qs + 3 represents market supply for a comp...

If P = 3Q_s + 3 represents market supply for a competitive industry and market demand is given by Q_d = 31 - 1/3 P, the equilibrium price is:

	$10.
	$15.
	$20.
	$48.

Equilibrium in a competitive market occurs at the point at which supply equals demand. Substituting Q from the demand equation into the market supply curve equation yieldsP = 3 (31 - 1/3P) + 3. Solving for P yields P = $48.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 210 If P = 3Qs + 3 represents market supply for a comp...	Learning Objective: 14-A

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award:
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MC Qu. 211 Suppose the market demand curve for a monopolist i...

Suppose the market demand curve for a monopolist is given by P = 50 - 10Q. Then the marginal revenue curve is given by:

	MR = 25 - 10Q.
	MR = 25 - 20Q.
	MR = 50 - 5Q.
	MR = 50 - 20Q

The marginal revenue curve has the same y-intercept as the market demand curve but twice the slope.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 211 Suppose the market demand curve for a monopolist i...	Learning Objective: 14-A

16.

award:
3.84 out of
3.84 points

MC Qu. 211 Suppose the market demand curve for a monopolist i...

Suppose the market demand curve for a monopolist is given by P = 50 - 10Q. Then the marginal revenue curve is given by:

	MR = 25 - 10Q.
	MR = 25 - 20Q.
	MR = 50 - 5Q.
	MR = 50 - 20Q

The marginal revenue curve has the same y-intercept as the market demand curve but twice the slope.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 211 Suppose the market demand curve for a monopolist i...	Learning Objective: 14-A

16.

award:
3.84 out of
3.84 points

MC Qu. 211 Suppose the market demand curve for a monopolist i...

Suppose the market demand curve for a monopolist is given by P = 50 - 10Q. Then the marginal revenue curve is given by:

	MR = 25 - 10Q.
	MR = 25 - 20Q.
	MR = 50 - 5Q.
	MR = 50 - 20Q

The marginal revenue curve has the same y-intercept as the market demand curve but twice the slope.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 211 Suppose the market demand curve for a monopolist i...	Learning Objective: 14-A

16.

award:
3.84 out of
3.84 points

MC Qu. 211 Suppose the market demand curve for a monopolist i...

Suppose the market demand curve for a monopolist is given by P = 50 - 10Q. Then the marginal revenue curve is given by:

	MR = 25 - 10Q.
	MR = 25 - 20Q.
	MR = 50 - 5Q.
	MR = 50 - 20Q

The marginal revenue curve has the same y-intercept as the market demand curve but twice the slope.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 211 Suppose the market demand curve for a monopolist i...	Learning Objective: 14-A

20.

award:
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3.84 points

MC Qu. 215 If P = Q/15 represents market supply for a competi...

If P = Q/15 represents market supply for a competitive industry and market demand is given by Q_d = 500 - 10P, the equilibrium price is:

	$12.50.
	$20.00.
	$31.25.
	$50.00.

Equilibrium in a competitive market occurs at the point at which supply equals demand. Rewriting the supply equation as Q = 15P and equating Q_d with Q_s yields equilibrium price of $20 and quantity of 300.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 215 If P = Q/15 represents market supply for a competi...	Learning Objective: 14-A

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MC Qu. 216 If MC = Q/15 represents marginal cost for a monopo...

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Q_d = 500 - 10P, the equation for marginal revenue is:

	MR = 50Q - (1/5)Q2.
	MR = 50Q - (1/10)Q2.
	MR = 50 - (1/5)Q.
	MR = 50 - (1/10)Q.

Total revenue (P × Q) is 50Q - (1/10)Q². The first derivative of total revenue with respect to Q is the MR equation.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 216 If MC = Q/15 represents marginal cost for a monopo...	Learning Objective: 14-A

22.

award:
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MC Qu. 217 If MC = Q/15 represents marginal cost for a monopo...

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Q_d = 500 - 10P, the monopolist maximizes profit by producing:

	187.5 units of output.
	250 units of output.
	300 units of output.
	500 units of output.

The monopolist sets MC = MR, so set Q/15 = 50 - (1/5)Q and solve for Q.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 217 If MC = Q/15 represents marginal cost for a monopo...	Learning Objective: 14-A

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award:
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MC Qu. 218 If MC = Q/15 represents marginal cost for a monopo...

If MC = Q/15 represents marginal cost for a monopolist and market demand is given by Q_d = 500 - 10P, the monopolist maximizes profit by setting price equal to:

	$12.50.
	$20.00.
	$31.25.
	$50.00.

Substitute Q = 187.5 into the market demand equation (187.5 = 500 - 10P) and solve for price.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 218 If MC = Q/15 represents marginal cost for a monopo...	Learning Objective: 14-A

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award:
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MC Qu. 219 If P = Q/15 represents marginal cost for a monopol...

If P = Q/15 represents marginal cost for a monopolist and market supply for a competitive industry and market demand is given by Q_d = 500 - 10P, the difference between the monopoly equilibrium and the competitive equilibrium is that a monopolist would produce:

	187.5 units of output at a price of $31.25 each, whereas competitive output would be 300 units at a price of $20.
	300 units of output at a price of $20, whereas competitive output would be 187.5 units at a price of $31.25.
	250 units of output at a price of $25, whereas competitive output would be 300 units at a price of $20.
	187.5 units of output at a price of $31.25, whereas competitive output would be 250 units at a price of $25.

To find the monopoly output, set MC = MR. To find the monopoly price, substitute the monopoly Q into the market demand equation. To find competitive output, rewrite the market supply equation as Q_s = 15P and set Q_s = Q_d, then substitute this price into either the Q_s equation or the Q_d equation.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 219 If P = Q/15 represents marginal cost for a monopol...

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MC Qu. 222 Refer to the graph shown. The equation...

Refer to the graph shown. The equation for this market demand curve is:

	Qd = 1,000 - 20P.
	Qd = 1,000 - 50P.
	Qd = 20 - 1,000P.
	Qd = 50 - 1,000P.

Using the equation for a straight line, y = ax + b, where y is price and x is quantity, the equation is P = 20 - (1/50)Q. Rewrite the equation by solving for Q.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 222 Refer to the graph shown. The equation...	Learning Objective: 14-A

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MC Qu. 223 Refer to the graph shown. The welfare ...

Refer to the graph shown. The welfare loss of monopoly is:

	1,137.5.
	1,381.25.
	2,112.5.
	2,762.5.

Monopoly causes consumer surplus to fall by [13.5 - 7] × 425 × ½.

Multiple Choice	Difficulty: 3 Hard	Section: Algebra of Monopoly and Competition
MC Qu. 223 Refer to the graph shown. The welfare ...	Learning Objective: 14-A