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.