Chapter 9 Homework

Bubba Golf, a manufacturer of golf clubs, can sell 3 drivers at $600 each. To sell 4 drivers, Bubba Golf must lower the price to $580 each. The marginal revenue of the fourth club is:

$520.

The inverse demand curve for a monopolist changes from P = 100 - 2Q to P = 120 - 2Q, while the marginal cost of production remains unchanged at a constant $20. After the change in the demand curve, the profit-maximizing price rises from _____, and the profit-maximizing output rises from _____.

$60 to $70; 20 units to 25 units

(Figure 9.7) The levels of producer surplus under monopoly and perfect competition are _____ and _____, respectively.

$800; $0

At the profit-maximizing quantity, the firm's marginal cost is $40 and it charges a price of $60. What is the price elasticity of demand at the profit-maximizing quantity?

-3

A firm's demand curve is given by Q = 100 - 0.67P. What is the firm's corresponding marginal revenue curve?

150-3Q

(Figure 9.6) What happens to the profit-maximizing price and quantity following the change in the demand curve from D1 to D2?

The price falls from $5 to approximately $4, and the output increases from 300 to approximately 333 units.

(Figure 9.10) If the government regulates he price of this natural monopolist to achieve a perfectly competitive output level, consumer surplus will change from _____ to _____.

$15,000; $75,350

Suppose a firm lowers its price to $10, raising the quantity sold from 4 to 5 units. If the marginal revenue of the fifth unit is $2, the firm must have lowered its price by:

$2.

In market A, a firm with market power faces an inverse demand curve of P = 10 - Q and a marginal cost that is constant at $2. In market B, a firm with market power faces an inverse demand curve of P = 8 - 0.75Q and a marginal cost of $2. Producer surplus in market A is _____ than in market B.

$4 higher

(Figure 9.2) The marginal revenue from expanding output from Q1 to Q2 is represented by area:

B - D.

(Figure 9.4) Which of the following statements is (are) TRUE? I. If the firm is producing 5 units of output, it should expand output to increase profits because P > MC. II. At a price of $16, the firm's profits would rise if it raised its price. III. The profit-maximizing quantity is 600 units. IV. The profit-maximizing price is $13.

IV

Market conditions change for a monopolist with an original marginal cost of MC = 5 + 10Q. The inverse demand curve rotates from P = 40 - 5Q to P = 47 - 2Q. What happens to the profit-maximizing price following the rotation of the demand curve?

The price rises from $31.25 to $41.

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _____, and the price in the perfectly competitive market would _____.

by less than $15; increase to $75

In Louisiana, it was a crime to sell burial caskets without a funeral director's license. This law was a source of _____ for licensed funeral directors and an example of _____.

market power; a government-sanctioned barrier to entry

Suppose that each firm in an industry has a total cost curve given by TC = 7,000 + 50Q. The lowest average total cost of producing 1,000 units of output occurs when:

one firm produces all 1,000 units of output.

Rent-seeking refers to:

the costly actions that firms undertake in their attempt to receive monopoly privilege from the government.

Government encouragement of monopoly:

through patents cause higher consumer prices but encourages firms to innovate and bring new products to the market.