ECON 4333 Lesson 11

Globo Public Supply has $1,000,000 in assets. Its demand curve is: P = 206 - .20•Q and its total cost function is: TC = 20,000 + 6•Q where TC excludes the cost of capital. If Globo Public Supply is UNREGULATED, find Globo's optimal price.

$106

Zar Island Gas Company is the sole producer of natural gas in the remote island country of Zar. The company's operations are regulated by the State Energy Commission. The demand function for gas in Zar has been estimated as: P = 1,000 - 0.2Q where Q is output (measured in units) and P is price (measured in dollars per unit). Zar Island's cost function is: TC = 300,000 + 10Q This total cost function does not include a "normal" return on the firm's invested capital of $4 million. In the problem above, the profit maximizing price is:

$505

Zinger Company manufactures and sells a line of sewing machines. Demand per period (Q) for a particular model is given by the following relationship: Q = 400 - 0.5P where P is price. Total costs (including a "normal" return to the owners) of producing Q units per period are: TC = 20,000 + 50Q + 3Q2 In the problem above, the profit maximizing price is:

$650

Zinger Company manufactures and sells a line of sewing machines. Demand per period (Q) for a particular model is given by the following relationship: Q = 400 - 0.5P where P is price. Total costs (including a "normal" return to the owners) of producing Q units per period are: TC = 20,000 + 50Q + 3Q2 In the Problem above, at equilibrium, the profit is

$8,125

Unique Creations has a monopoly position in magnometers. If the marginal cost for a magnometer is $60 and the price elasticity for magnometers is -4, what is the optimal monopoly price? Hint: P (1 +1/E) = MC

$80

Zar Island Gas Company is the sole producer of natural gas in the remote island country of Zar. The company's operations are regulated by the State Energy Commission. The demand function for gas in Zar has been estimated as: P = 1,000 - 0.2Q where Q is output (measured in units) and P is price (measured in dollars per unit). Zar Island's cost function is: TC = 300,000 + 10Q This total cost function does not include a "normal" return on the firm's invested capital of $4 million. In the problem above, profit maximizing output is:

2475

In the electric power industry, residential customers have relatively ____ demand for electricity compared with large industrial users. But contrary to price discrimination, large industrial users generally are charged ____ rates.

Elastic, higher

If a monopolist is in short-run equilibrium, it must be in long-run equilibrium

False

Monopolists always make economic profits.

False

The monopolist can increase output and price simultaneously

False

A monopoly firm will produce at minimum ATC:

If MR happens to equal MC where ATC is at a minimum.

Figure 15-4 Refer to Figure 15-4. If the monopoly firm is currently producing Q4 units of output, then a decrease in output will necessarily cause profit to

Increase as long as the new level of output is at least Q2

Which of the following is NOT considered a consequence of monopoly?

Least cost production

If the monopolist operated in the inelastic range of its demand curve:

Marginal revenue would be negative.

Land's End estimates a demand curve for turtleneck sweaters to be: Log Q = .41 + 2.3 Log Y - 3 Log P where Q is quantity, P is price, and Y is a measure on national income. If the marginal cost of imported turtleneck sweaters is $9.00. (Hint: P (1 +1/E) = MC). The optimal monopoly price would be:

P = $13.50

The market demand curve for a perfectly competitive industry is QD = 12 - 2P. The market supply curve is QS = 3 + P. The market will be in equilibrium if

P = 3 and Q = 6

In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale. If price were set equal to marginal cost, then:

Price would be below average cost

A monopolized market is in long-run equilibrium when

Production takes place where long-run marginal cost is equal to marginal revenue and price is not below long-run average cost

Figure 15-4 Refer to Figure 15-4. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Q3

The ultimate success of a monopoly in the long run depends on its ability:

To prevent entry of rivals