Read the following statements carefully and state whether they are TRUE, FALSE or UNCERTAIN (ambigous). Ensure to Justify your answers: a.) A Consumer will always buy more of a good when the price declines. b.) The marginal cost and the average variable cost are the same for each unit of output. c.) A Monopolist will choose to operate only in a market where the market demand is perfectly inelastic d.) In a perfectly competitive market, the demand curve is perfectly inelastic implying that the market price is equal to the marginal revenue.

Read the following statements carefully and state whether they are TRUE, FALSE or UNCERTAIN (ambigous). Ensure to Justify your answers: a.) A Consumer will always buy more of a good when the price declines. b.) The marginal cost and the average variable cost are the same for each unit of output. c.) A Monopolist will choose to operate only in a market where the market demand is perfectly inelastic d.) In a perfectly competitive market, the demand curve is perfectly inelastic implying that the market price is equal to the marginal revenue.

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter10: Monopoly

Section: Chapter Questions

Problem 2QP

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Carefully explain whether each of the following statements is true, false or uncertain. a.) Because of their monopoly power, monopolists always set the highest price in order to maximize their profits. b.) Accounting profit tends to be larger than economic profit. c.) As Uncle Bob is a rational person, he will always hire an additional worker as long as this worker brings in a positive amount of revenue. d.) A patent or copyright reduce a firm’s or a person’s monopoly power in a market. f.) In a perfectly competitive market, both buyers and sellers are price takers. g.) A firm operating in a perfectly competitive market may earn positive, negative, or zero economic profit in the long run. h.) For a price-taking firm, average revenue equals to marginal revenue. i.) In a perfectly competitive market, firms that raise their prices above market price are typically rewarded with larger profits.
A monopolist faces a demand curve P = 100 – 4Q and initially faces total costTC = 12Q. (a) Calculate the profit-maximizing monopoly quantity and price, and compute the monopolist's total revenue and profits at the optimal price. (b) Suppose that the monopolist's total increases to TC = 44Q. Verify that the monopolist's total revenue goes down. c) Suppose that all firms in a perfectly competitive equilibrium had a combined total cost T C = 12Q. Find the long-run perfectly competitive industry price and quantity. Also what are the combined industry profits and revenue. (Hint: the supply curve is just the marginal cost) (d) Suppose that all firms' total costs increased to T C = 44Q. Verify that the increase in marginal cost causes total industry revenue to go up.
A monopolist faces a demand curve p=150-q. Currently MC=AC=50. The monopolist is able to develop a cost-saving device which will lower their cost to MC=AC=30.a) How much will profits increase after the introduction of the new technology?b) If it costs the monopolist $3000 to develop this technology would they? If not what would be their maximum they would pay to develop this technology?c) If this industry were perfectly competitive, with the same cost, how much could a patent holder earn for this technology?
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A monopolist has a constant marginal cost of 12. Consumers' inverse demand is P = 32 - 4Q. The monopolist runs a persuasive advertising campaign that costs 26 and increases consumer demand to P = 37 - 4Q. (a) What is the gain (or loss) in the firms profits caused by the advertising campaign? b) When consumers' pre-advertising preferences are used to calculate welfare, what is the welfare gain (or loss) caused by the advertising campaign? Answer 2 Question 1 (c) When consumers' post-advertising preferences are used to calculate welfare, what is the welfare gain (or loss) caused by the advertising campaign? Answer 3 Question 1
You are the only seller of Melba sauce in the Albany region. The local demand for jars of Melba sauce and your marginal costs of producing the sauce are as follows: Marginal benefit (demand): P = 50 - 0.5Q Marginal cost (supply): P = 2 + 2Q What quantity of jars of Melba sauce should you optimally produce as a monopolist?
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A monopolist has a demand curve given by P = 90 - 2Q and a total cost curve given by TC = 72 + Q2. The associated marginal cost curve is MC = 2Q, %3D and the associated marginal revenue curve is MR = 90 – 4Q. What is the profit-maximizing quantity and price. How much economic profit does the monopolist earn? Suppose this monopolist could engage in an advertising campaign that would increase demand to P = 108 – 2Q (and MR = 108 – 4Q). What would be the maximum amount this company would be willing to pay for this advertising campaign?
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A monopolist has a cost function of c(y)=yso that its marginal costs are constant at $1 per unit. it faces the following demand curve: 0 if p> 20 or 100/y if p is less than or equal to 20 find (1) What is the profit-maximizing choice of output? (2) If the government could set a price ceiling on this monopolist in order to force it to act as a competitor, what price should the government set? 3) What output would the monopolist produce if he is forced to behave as a competitor?