BECO HW 4 & 5
Refer to the graph. What area measures the monopolist's profit?
- (B - Z) x O - (C - X) x N - (B - Y) x O - 0.5[(B - Z) x (P - N)]
Suppose that a firm in a competitive market faces the following revenue and costs (look at table). In order to maximize profits, the firm will produce:
- 1 unit of output because marginal cost is minimized - 4 units of output because marginal revenue exceeds marginal cost - 5 units of output because marginal revenue equals marginal cost - 7 units of output because total revenue is maximized
Suppose that a firm in a competitive market has the following cost curves (look at graph). The firm should shut down if the market price is:
- Above $6.50 - Above $3 but less than $6.50 - Above $6.50 but less than $10 - Less than $3
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
- Average revenue is less than the price of the product - Average revenue is less than marginal revenue - Marginal revenue is less than the price of the good - Marginal revenue is greater than the price of the good
Which of the following is not a characteristic of a competitive market?
- Buyers and sellers are price takers - Entry is limited - Each firm sells a virtually identical product - Each firm chooses an output level that maximizes profits
Refer to the graph. How much output will the monopolist produce in order to maximize a profit?
- D - N - O - P
Suppose that a firm in a competitive market faces the following revenues and costs (look at table). If the firm is currently producing 14 units, what would you advise the owners?
- Decrease quantity to 13 units - Increase quantity to 15 units - Continue to operate at 14 units - Increase quantity to 16 units
A benefit to society of the patent and copyright laws is that those laws:
- Help to keep prices down - Help to prevent a single firm from acquiring ownership of a key resource - Encourage creative activity - Discourage the production of inefficient products
Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market?
- Less than $2.50 - More than $2.50 - Exactly $2.50 - The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm
The deadweight loss (DWL) associated with a monopoly occurs because the monopolist:
- Minimizes cost - Produces an output level less than the socially optimal level - Produces an output level greater than the socially optimal level - Equates average revenue with marginal cost
When a firm operates under conditions of monopoly, its price is:
- Not constrained - Constrained by marginal cost - Constrained by demand - Constrained only by its social agenda
Refer to the graph. What is the monopoly price and quantity?
- P = X; Q = J - P = Y; Q = K - P = Y; Q = J - P = Z; Q = J
What is the socially efficient (i.e. competitive) price and quantity?
- P = X; Q = J - P = Y; Q = K - P = Y; Q = J - P = Z; Q = K
Suppose that a firm in a competitive market has the following cost curves (look at graph). If the market price is $2.50, the firm will earn:
- Positive economic profits and shut down - Negative economic profits in the short run but remain in business - Negative economic profits and shut down - Zero economic profit in the short run
When buyers in a competitive market take the selling price as given, they are said to be
- Price takers - Market entrants - Monopolists - Free riders
Which of the following is a necessary characteristic of a monopoly?
- The firm is the sole seller of the product - The firm's product has many close substitutes - The firm generates a large economic profit - The firm is located in a small geographic market
Kalene's Smoke House is the only place within 100 miles that sells smoked sausage. Assuming that Kalene is a monopolist and maximizing her profit, which of the following statements is true?
- The price of Kalene's smoked sausage will be less than Kalene's marginal cost - The price of Kalene's smoked sausage will exceed Kalene's marginal cost - The price of Kalene's smoked sausage will equal Kalene's marginal cost - Costs are irrelevant to Kalene because she is a monopolist
Refer to the graph. What is the area of Deadweight Loss (DWL)?
- The rectangle (X - Z) x J - The triangle 1/2 [(X - Z) x (K - J)] - The triangle 1/2 [(X - Y) x (K - J)] - The rectangle (X - Z) x J plus the triangle 1/2 [(X - Z) x (K - J)]
Monopoly firms face:
- Upward-sloping demand curves, so they can sell as much output as they desire at the market price - Downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve - Horizontal demand curves, so they can sell as much output as they desire at the market price - Horizontal demand curves, so they can sell only a limited quantity of output at each price
Refer to the graph. What price will the monopolist charge in order to maximize profit?
- X - Z - B - C
Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing:
- to produce the quantity at which average variable cost is minimized - to produce the quantity at which average fixed cost is minimized - the quantity at which market price is equal to Mr. McDonald's marginal cost of production - the quantity at which market price exceeds Mr. McDonald's marginal cost of production by the greatest amount
In the short run, when should a perfectly competitive firm shut down?
P < MC P < AVC P > ATC P > AFC
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q^2. Thus, the marginal costs are MC(Q) = 14 + 4Q. What price should the firm charge in the short run?
P* = $110
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q^2. Thus, the marginal costs are MC(Q) = 6Q. Your firm's maximum profits are:
P* = $250
The inverse demand for Harley Davidson motorcycles is given by -- P = 40,000 - 10Q -- where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. What is the profit-maximizing price?
P* = $28,000
The inverse demand for Harley Davidson motorcycles is given by -- P = 40,000 - 10Q -- where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing price?
P* = $29000
Five networks are vying to receive the exclusive pay-per-view broadcast rights (i.e. monopoly) to the World Series of Yahtzee. Each estimates that the inverse demand for watching this nail-biter of an event is given by -- P = 100-0.01Q -- Each can provide the broadcast at a constant marginal cost of $1 per viewer. What is the profit-maximizing price?
P* = $50.50
The following graph summarizes the demand and costs for a firm that operates in a perfectly competitive market. What price should this firm charge in the short run?
P* = 28
You are the manager of a firm that sells its product in a competitive market at a price of $14. Your firm's cost function is C = 10 + 4Q + 0.5Q^2. Thus, the marginal costs are MC(Q) = 4 + Q. The profit-maximizing output for your firm is:
Q* = 10
You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q^2. Thus, the marginal costs are MC(Q) = 6Q. The profit-maximizing output for your firm is:
Q* = 10
The inverse demand for Harley Davidson motorcycles is given by -- P = 40,000 - 10Q -- where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Heavy tariffs on imported steel drive up Harley's marginal and average cost by $2,000. What is the new profit-maximizing quantity?
Q* = 1100
The inverse demand for Harley Davidson motorcycles is given by -- P = 40,000 - 10Q -- where P is the price in dollars, and Q measures the number of units sold each month. Harley Davidson is currently producing motorcycles at a constant marginal and average cost of $16,000. Assume Harley Davidson is a monopoly. What is the profit-maximizing quantity?
Q* = 1200
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q^2. Thus, the marginal costs are MC(Q) = 14 + 4Q. How much output should the firm produce in the short run?
Q* = 24
Five networks are vying to receive the exclusive pay-per-view broadcast rights (i.e. monopoly) to the World Series of Yahtzee. Each estimates that the inverse demand for watching this nail-biter of an event is given by -- P = 100-0.01Q -- Each can provide the broadcast at a constant marginal cost of $1 per viewer. What is the profit-maximizing level of output?
Q* = 4,950
You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q^2. Thus, the marginal costs are MC(Q) = 8Q. The profit-maximizing output for your firm is:
Q* = 5
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q^2. Thus, the marginal costs are MC(Q) = 10Q. The profit-maximizing output for your firm is:
Q* = 5
The following graph summarizes the demand and costs for a firm that operates in a perfectly competitive market. What level of output should this firm produce in the short run?
Q* = 7
A firm sells its product in a perfectly competitive market where other firms charge a price of $110 per unit. The firm estimates its total costs as C(Q) = 70 + 14Q + 2Q^2. Thus, the marginal costs are MC(Q) = 14 + 4Q. What are the firm's short run profits?
π = $1082
Irwin is a monopoly seller of specialty bearings. Consider the accompanying graph, which illustrates the demand and marginal revenue curves for Irwin's 30-weight ball bearings, along with the marginal and average total costs of producing bearings. How much profit does Irwin earn from selling at the profit-maximizing level of price and quantity? (Please ignore "dozens")
π = $4,000
You are the manager of a firm that sells its product in a competitive market at a price of $50. Your firm's cost function is C = 40 + 5Q^2. Thus, the marginal costs are MC(Q) = 10Q. Your firm's maximum profits are?
π = $85