# Economics 201 Fall 2010 Introduction to Economic Analysis

Size: px
Start display at page:

Transcription

1 Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #5 Solutions Instructions: This problem set is due in class on Wednesday, October 13. If you get stuck, you are encouraged to ask questions of the instructor or the tutors. Jeff has office hours Friday 1:00 2:00pm, Monday 3:00 4:00pm, and Tuesday 10:0 11:00am in Vollum 229. Tutors will be available at work sessions Monday and Tuesday 7 10pm in the Dorothy Johansen House. Individual tutoring (at no cost for up to one hour per week) can be arranged through the Office of Student Services. 1. Regulation of Monopoly. Regulus Grimm is a city planner in Reelihumid, Georgia, a medium-sized city. The city is considering a proposal to award an exclusive contract to Clear Vision, Inc., a cable television carrier. Mr. Grimm has discovered that an economic consultant hired a year before has generated the demand, marginal revenue, total cost and marginal cost functions given below: Demand: P = Q Marginal Revenue: P = Q Total Cost: TC = 120, Q 2 Marginal Cost: MC = Q, where Q = the number of cable subscribers and P = the price of basic monthly cable service. Conditions change very slowly in Reelihumid so that Mr. Grimm considers the cost and demand functions to be reasonably valid for present conditions. Mr. Grimm knows relatively little economics and has hired you to help formulate a regulatory policy based on this information. Use both graphs and numbers to present your answers. a. What price and quantity would be expected if CVI is allowed to operate completely unregulated? According to the formula at the beginning of the problem set, marginal revenue is Q. Setting MC = MC yields Q = Q, or Q = 28, or Q = 10,000. In order to serve 10,000 customers, CVI can charge a price of ,000 = 28 8 = \$20. b. Mr. Grimm has asked you to recommend a price and quantity that would be socially efficient. Recommend a price and quantity to Mr. Grimm using economic theory (in graphs and simple language) to justify your answer. Social efficiency occurs where price = marginal cost. Setting the demand curve equal to the marginal cost function gives Q = Q, or 28 = Q, so Q = 14,000. To serve 14,000 subscribers, CVI would have to charge ,000 = \$ c. Compare the economic efficiency implications of (a) and (b) above. How much would the citizens gain if the optimal regulation is imposed? How much would CVI lose?

2 Consumer surplus is the triangle above the price line under the demand curve. The demand curve intersects the vertical axis at \$28, so the height of the CS triangle under profitmaximization is \$28 \$20 = \$8. The width of the triangle under monopoly is 10,000, so the total consumer surplus is ½ \$8 10,000 = \$40,000. At the socially efficient point, the height of the triangle is \$28 \$16.80 = \$11.20 and the width is 14,000, so consumer surplus is ½ \$ ,000 = \$78,400. Consumers gain \$78,400 \$40,000 = \$38,400 from optimal regulation. The loss to CVI from regulation can be determined either by direct evaluation of profit or from the producer surplus. At the profit-maximizing point, CVI has total revenue of \$20 10,000 = \$200,000 and total cost of 120, (10,000) 2 = \$180,000, so profit is \$20,000. At the regulated socially efficient point, total revenue is \$ ,000 = \$235,200 and total cost is 120, (14,000) 2 = \$237,600, so they make a loss of \$2,400. The cost of the regulation to CVI is \$20,000 ( \$2,400) = \$22,400. Using the producer surplus method, we calculate the area above the MC curve, below the price line, and between the vertical axis and the quantity produced. For the profit-maximizing point, this is a trapezoid because the price line is above the MC curve. The trapezoid is 10,000 units wide, the left edge (along the axis) is \$20 high (because the MC curve passes through the origin), and the right edge is the difference between price and marginal cost at 10,000 units produced: \$ ,000 = \$8. The area of the trapezoid is then ½ 10,000 (\$20 + \$8) = \$140,000. Note that producer surplus is profit (\$20,000) plus fixed cost (\$120,000). At the social optimum, the producer surplus area is a triangle with height \$16.80 and width 14,000, which is ½ \$ ,000 = \$117,600. Again, this is profit ( \$2,400) plus fixed cost (\$120,000). And again, the difference in surplus between the profit-maximization point and the socially optimal point is \$140,000 \$117,600 = \$22,400. You might worry that CVI would leave the market if it continues to make losses. They might adjust their fixed inputs in the long run, which could lower ATC along the LRAC curve. If not, you might have to adopt a regulation strategy that allows them to break even (P = ATC) rather than one that pursues allocative efficiency (P = MC). Dividing TC by Q yields ATC = ATC = 120,000/Q Q. Setting this equal to price gives 120,000/Q Q = Q. Multiplying both sides of the equation by Q yields 120, Q 2 = 28Q Q 2, which simplifies to Q 2 28Q + 120,000 = 0. This is a quadratic equation. It has two real solutions (because the linear demand curve intersects the parabolic ATC curve twice). The relevant one is the larger of the two: Q = 13,780. At this quantity, consumers will pay \$ Consumer surplus at this point is ½ ( ) 13,780 = \$75,955.36, which is a \$35, gain from unregulated monopoly but a \$2, smaller gain than the efficient production level. Profit is zero and producer surplus is equal to FC = \$120,000 at this point.

3 2. Regulation. The MegaZap Electric Company produces and distributes electricity to residential customers in the metropolitan area. This monopoly firm is regulated, as are other investor owned electric companies. The company faces the following demand and marginal revenue functions: P = Q MR = Q Its marginal cost function is: MC = Q, where Q is in millions of kilowatt hours and P is in dollars per kilowatt hour. a. How much will MegaZap produce and what price will it charge if it is unregulated? Setting MR = MC, Q = Q, or = Q. Q = 0.035/ = mkwh. At this quantity, they can sell at a price of P = = \$ /kwh. b. What would be the efficient price and quantity? Is it feasible for a well-informed regulator to set this price? The efficient price and quantity occurs at the level of output where P = MC, which means Q = Q, or = Q, so Q = 0.035/ = 2 mkwh. The price at the efficient level of output is P = = \$0.02/kwh. It would be feasible for the regulator to set this price as long as it exceeds average variable cost in the short run or average total cost in the long run. c. How much additional social benefit will be achieved through regulation? Regulation is not free; analysts and monitors must be paid. What is the most that the citizenry should pay to regulate MegaZap? The social benefit from regulation is the area between the demand and marginal-cost curves over the range of output from the monopoly output (1.2727) and the efficient level of output (2). Since both the demand curve and the marginal-revenue curve are linear, this area is a triangle. Its area is half the width times the height. The width is = mkwh and the height is the difference between the price at Q = , which is , and the marginal cost at that level of output, MC = = The difference is = \$ /kwh. The area is thus ½ mkwh \$ /kwh = \$ m = \$4,626. If it costs more than this amount to implement the regulation (including the deadweight loss of taxation to pay for it), society as a whole is better off just letting the utility maximize its profit. But this takes into account MegaZap s losses from regulation. From the perspective of the consumers only, they might be willing to pay up to the amount of consumer surplus captured by regulation, which would be a trapezoid of height \$ /kwh, width at the top equal to mkwh, and width at the bottom equal to 2mkwh. This area is ½ \$ /kwh mkwh = \$11, Price Discrimination. Calloway Shirt Manufacturers sells knit shirts in two sub-markets. In one market, the shirts carry Calloway's popular label and breast logo and receive a substantial price premium. The other sub-market is targeted toward more price conscious consumers who buy the shirts without a breast logo, carrying the name Archwood. The

4 retail price of the shirts carrying the Calloway label is \$42.00 while the Archwood shirts sell for \$25. Calloway's market research indicates a price elasticity of demand for the higher priced shirt of 2.0, and an elasticity for the Archwood shirts of 4.0. Moreover, the research suggests that both elasticities are constant over broad ranges of output. a. Are Calloway's current prices optimal? Why or why not? Let P C = Calloway price, P A = Archwood price, ε C = Calloway elasticity, and ε A = Archwood elasticity. For an optimal price ratio the following conditions must hold. Thus the current price is not optimal. 1+ P ε C A must = PA 1+ εc PC 42 = = 1.68 PA ε = = = = ε -2 2 C A b. Management considers the \$25 price to be optimal and necessary to meet the competition. What price should the firm set for the Calloway label to achieve an optimal price ratio? Given the elasticities, the price ratio should be 1.5. This, if P A = \$25, then P C must = \$ Efficiency of Monopoly and Price Discrimination. The industry demand curve for a particular market is: Q = P. The industry exhibits constant long-run average cost of \$1.50 per unit at all levels of output, regardless of the market structure. Calculate market output, price (if applicable), consumer surplus, and producer surplus (profit) for each of the scenarios below. Compare the economic efficiency of each possibility. a. Perfect Competition Since LAC is constant, LMC is also constant and equal to LAC at \$1.50. Under competition, output is where P = LMC. The demand curve gives P = Q. Setting this equal to LMC of 1.50 gives 1.50 = Q, or Q = 1500 with P = Consumer surplus is that area of the triangle above the market price (1.50) and below the demand curve. The demand curve is a line, so the area is a triangle with width equal to the quantity 1500 and height equal to the difference between the intercept 9 and the market price Thus, the

5 area is ½ \$ = \$5,625. Producer surplus is zero because the marginal-cost (supply) curve is horizontal at the market price, so there is no area. b. Pure Monopoly (Hint: MR = Q) A monopoly firm will set MR = LMC, or Q = 1.50, or Q = 750. Price is = \$5.25. The consumer surplus is the triangle above 5.25 and below the demand curve from output of zero to 750. This triangle as height of = 3.75 and width of 750, so its area is ½ = \$1, Producer surplus is the firm s profit, which is the difference between price (5.25) and constant marginal cost (1.50) multiplied by the quantity (750), which is the area of the rectangle between market price and MC: = \$2, Total surplus is thus \$1, \$2, = \$4, c. First-Degree Price Discrimination Under first-degree price discrimination, the price (at the margin) and quantity are the same as under competition, but the surplus of \$5,625 goes to producers rather than consumers. Both competition and first-degree price discrimination are efficient (in the sense of the socially optimal amount of the good being produced), but pure monopoly is not.

### 1) If the government sets a price ceiling below the monopoly price, will this reduce deadweight loss in a monopolized market?

Managerial Economics Study Questions With Solutions Monopoly and Price Disrcimination 1) If the government sets a price ceiling below the monopoly price, will this reduce deadweight loss in a monopolized

### Problem Set 9 (75 points)

Problem Set 9 (75 points) 1. A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity

### How To Calculate Profit Maximization In A Competitive Dairy Firm

Microeconomic FRQ s 2005 1. Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in long-run equilibrium. a. Draw correctly-labeled

### Marginal cost. Average cost. Marginal revenue 10 20 40

Economics 101 Fall 2011 Homework #6 Due: 12/13/2010 in lecture Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework

### CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY

CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY EXERCISES 3. A monopolist firm faces a demand with constant elasticity of -.0. It has a constant marginal cost of \$0 per unit and sets a price to maximize

### Economics 201 Fall 2010 Introduction to Economic Analysis Problem Set #6 Due: Wednesday, November 3

Economics 201 Fall 2010 Introduction to Economic Analysis Jeffrey Parker Problem Set #6 Due: Wednesday, November 3 1. Cournot Duopoly. Bartels and Jaymes are two individuals who one day discover a stream

### Principle of Microeconomics Econ 202-506 chapter 13

Principle of Microeconomics Econ 202-506 chapter 13 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The WaveHouse on Mission Beach in San Diego

### Figure: Computing Monopoly Profit

Name: Date: 1. Most electric, gas, and water companies are examples of: A) unregulated monopolies. B) natural monopolies. C) restricted-input monopolies. D) sunk-cost monopolies. Use the following to answer

### N. Gregory Mankiw Principles of Economics. Chapter 15. MONOPOLY

N. Gregory Mankiw Principles of Economics Chapter 15. MONOPOLY Solutions to Problems and Applications 1. The following table shows revenue, costs, and profits, where quantities are in thousands, and total

### Chapter 15: Monopoly WHY MONOPOLIES ARISE HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS

Chapter 15: While a competitive firm is a taker, a monopoly firm is a maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

### Profit maximization in different market structures

Profit maximization in different market structures In the cappuccino problem as well in your team project, demand is clearly downward sloping if the store wants to sell more drink, it has to lower the

### MODULE 62: MONOPOLY & PUBLIC POLICY

MODULE 62: MONOPOLY & PUBLIC POLICY Schmidty School of Economics 1 LEARNING TARGETS I CAN Ø Compare & Contrast the effect that perfect competition and monopoly has upon society's welfare. Ø Explain how

### AP Microeconomics 2003 Scoring Guidelines

AP Microeconomics 2003 Scoring Guidelines The materials included in these files are intended for use by AP teachers for course and exam preparation; permission for any other use must be sought from the

### Chapter 7: The Costs of Production QUESTIONS FOR REVIEW

HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?

### Econ Wizard User s Manual

1 Econ Wizard User s Manual Kevin Binns Matt Friedrichsen Purpose: This program is intended to be used by students enrolled in introductory economics classes. The program is meant to help these students

### Economics 431 Fall 2003 1st midterm Answer Key

Economics 431 Fall 003 1st midterm Answer Key 1) (7 points) Consider an industry that consists of a large number of identical firms. In the long run competitive equilibrium, a firm s marginal cost must

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Economics 103 Spring 2012: Multiple choice review questions for final exam. Exam will cover chapters on perfect competition, monopoly, monopolistic competition and oligopoly up to the Nash equilibrium

### Thus MR(Q) = P (Q) Q P (Q 1) (Q 1) < P (Q) Q P (Q) (Q 1) = P (Q), since P (Q 1) > P (Q).

A monopolist s marginal revenue is always less than or equal to the price of the good. Marginal revenue is the amount of revenue the firm receives for each additional unit of output. It is the difference

### Final Exam 15 December 2006

Eco 301 Name Final Exam 15 December 2006 120 points. Please write all answers in ink. You may use pencil and a straight edge to draw graphs. Allocate your time efficiently. Part 1 (10 points each) 1. As

### A. a change in demand. B. a change in quantity demanded. C. a change in quantity supplied. D. unit elasticity. E. a change in average variable cost.

1. The supply of gasoline changes, causing the price of gasoline to change. The resulting movement from one point to another along the demand curve for gasoline is called A. a change in demand. B. a change

### CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.

### c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

### An increase in the number of students attending college. shifts to the left. An increase in the wage rate of refinery workers.

1. Which of the following would shift the demand curve for new textbooks to the right? a. A fall in the price of paper used in publishing texts. b. A fall in the price of equivalent used text books. c.

### AP Microeconomics 2002 Scoring Guidelines

AP Microeconomics 2002 Scoring Guidelines The materials included in these files are intended for use by AP teachers for course and exam preparation in the classroom; permission for any other use must be

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MBA 640 Survey of Microeconomics Fall 2006, Quiz 6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly is best defined as a firm that

### 13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

### ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS

ECON 103, 2008-2 ANSWERS TO HOME WORK ASSIGNMENTS Due the Week of June 23 Chapter 8 WRITE [4] Use the demand schedule that follows to calculate total revenue and marginal revenue at each quantity. Plot

economicsentrance.weebly.com Basic Exercises Micro Economics AKG 09 Table of Contents MICRO ECONOMICS Budget Constraint... 4 Practice problems... 4 Answers... 4 Supply and Demand... 7 Practice Problems...

9.3 Solving Quadratic Equations by Using the Quadratic Formula 9.3 OBJECTIVES 1. Solve a quadratic equation by using the quadratic formula 2. Determine the nature of the solutions of a quadratic equation

### chapter: Solution Solution Monopoly 1. Each of the following firms possesses market power. Explain its source.

S197-S28_Krugman2e_PS_Ch14.qxp 9/16/8 9:22 PM Page S-197 Monopoly chapter: 14 1. Each of the following firms possesses market power. Explain its source. a. Merck, the producer of the patented cholesterol-lowering

1 Monopoly Why Monopolies Arise? Monopoly is a rm that is the sole seller of a product without close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller

### 11 PERFECT COMPETITION. Chapter. Competition

Chapter 11 PERFECT COMPETITION Competition Topic: Perfect Competition 1) Perfect competition is an industry with A) a few firms producing identical goods B) a few firms producing goods that differ somewhat

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 11 Monopoly practice Davidson spring2007 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A monopoly industry is characterized by 1) A)

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron.

Principles of Microeconomics Fall 2007, Quiz #6 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question on the accompanying scantron. 1) A monopoly is

### Practice Questions Week 8 Day 1

Practice Questions Week 8 Day 1 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The characteristics of a market that influence the behavior of market participants

### Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen

Understanding Economics 2nd edition by Mark Lovewell and Khoa Nguyen Chapter 5 Perfect Competition Chapter Objectives! In this chapter you will: " Consider the four market structures, and the main differences

### Chapter 6: Break-Even & CVP Analysis

HOSP 1107 (Business Math) Learning Centre Chapter 6: Break-Even & CVP Analysis One of the main concerns in running a business is achieving a desired level of profitability. Cost-volume profit analysis

### A2 Micro Business Economics Diagrams

A2 Micro Business Economics Diagrams Advice on drawing diagrams in the exam The right size for a diagram is ½ of a side of A4 don t make them too small if needed, move onto a new side of paper rather than

### CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

### Chapter 8. Competitive Firms and Markets

Chapter 8. Competitive Firms and Markets We have learned the production function and cost function, the question now is: how much to produce such that firm can maximize his profit? To solve this question,

### Pre-Test Chapter 21 ed17

Pre-Test Chapter 21 ed17 Multiple Choice Questions 1. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Firms that survive in the long run are usually those that A) remain small. B) strive for the largest

### Profit and Revenue Maximization

WSG7 7/7/03 4:36 PM Page 95 7 Profit and Revenue Maximization OVERVIEW The purpose of this chapter is to develop a general framework for finding optimal solutions to managerial decision-making problems.

### A Detailed Price Discrimination Example

A Detailed Price Discrimination Example Suppose that there are two different types of customers for a monopolist s product. Customers of type 1 have demand curves as follows. These demand curves include

### Monopoly WHY MONOPOLIES ARISE

In this chapter, look for the answers to these questions: Why do monopolies arise? Why is MR < P for a monopolist? How do monopolies choose their P and Q? How do monopolies affect society s well-being?

### Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph

The Effect of Taxes on Equilibrium Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph Solution to part a: Set the

### Chapter 14 Monopoly. 14.1 Monopoly and How It Arises

Chapter 14 Monopoly 14.1 Monopoly and How It Arises 1) One of the requirements for a monopoly is that A) products are high priced. B) there are several close substitutes for the product. C) there is a

### 22 COMPETITIVE MARKETS IN THE LONG-RUN

22 COMPETITIVE MARKETS IN THE LONG-RUN Purpose: To illustrate price determination in the long-run in a competitive market. Computer file: lrmkt198.xls Instructions and background information: You are a

### Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.

Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry

### Figure 1, A Monopolistically Competitive Firm

The Digital Economist Lecture 9 Pricing Power and Price Discrimination Many firms have the ability to charge prices for their products consistent with their best interests even thought they may not be

### Chapter 11 Pricing Strategies for Firms with Market Power

Managerial Economics & Business Strategy Chapter 11 Pricing Strategies for Firms with Market Power McGraw-Hill/Irwin Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved. Overview I. Basic

### Market Structure: Perfect Competition and Monopoly

WSG8 7/7/03 4:34 PM Page 113 8 Market Structure: Perfect Competition and Monopoly OVERVIEW One of the most important decisions made by a manager is how to price the firm s product. If the firm is a profit

### Learning Objectives. After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to:

Learning Objectives After reading Chapter 11 and working the problems for Chapter 11 in the textbook and in this Workbook, you should be able to: Discuss three characteristics of perfectly competitive

ANSWERS TO END-OF-CHAPTER QUESTIONS 23-1 Briefly indicate the basic characteristics of pure competition, pure monopoly, monopolistic competition, and oligopoly. Under which of these market classifications

### Managerial Economics

Managerial Economics Unit 4: Price discrimination Rudolf Winter-Ebmer Johannes Kepler University Linz Winter Term 2012 Managerial Economics: Unit 4 - Price discrimination 1 / 39 OBJECTIVES Objectives Explain

### Final Exam (Version 1) Answers

Final Exam Economics 101 Fall 2003 Wallace Final Exam (Version 1) Answers 1. The marginal revenue product equals A) total revenue divided by total product (output). B) marginal revenue divided by marginal

### Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9

Principles of Economics: Micro: Exam #2: Chapters 1-10 Page 1 of 9 print name on the line above as your signature INSTRUCTIONS: 1. This Exam #2 must be completed within the allocated time (i.e., between

### -1- Worked Solutions 5. Lectures 9 and 10. Question Lecture 1. L9 2. L9 3. L9 4. L9 5. L9 6. L9 7. L9 8. L9 9. L9 10. L9 11. L9 12.

-1- Worked Solutions 5 Lectures 9 and 10. Question Lecture 1. L9 2. L9 3. L9 4. L9 5. L9 6. L9 7. L9 8. L9 9. L9 10. L9 11. L9 12. L10 Unit 5 solutions Exercise 1 There may be practical difficulties in

### Managerial Economics & Business Strategy Chapter 8. Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets I. Perfect Competition Overview Characteristics and profit outlook. Effect

### Microeconomics Topic 7: Contrast market outcomes under monopoly and competition.

Microeconomics Topic 7: Contrast market outcomes under monopoly and competition. Reference: N. Gregory Mankiw s rinciples of Microeconomics, 2 nd edition, Chapter 14 (p. 291-314) and Chapter 15 (p. 315-347).

### Chapter 11 Pricing With Market Power

Chapter 11 Pricing With Market Power Review Questions 1. Suppose a firm can practice perfect first-degree price discrimination. What is the lowest price it will charge, and what will its total output be?

### Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit

Chapter 8 Production Technology and Costs 8.1 Economic Costs and Economic Profit 1) Accountants include costs as part of a firm's costs, while economists include costs. A) explicit; no explicit B) implicit;

### Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization

Lecture 2. Marginal Functions, Average Functions, Elasticity, the Marginal Principle, and Constrained Optimization 2.1. Introduction Suppose that an economic relationship can be described by a real-valued

### MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Chapter 11 Perfect Competition - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Perfect competition is an industry with A) a

### AP Microeconomics 2011 Scoring Guidelines

AP Microeconomics 2011 Scoring Guidelines The College Board The College Board is a not-for-profit membership association whose mission is to connect students to college success and opportunity. Founded

### Chapter 27: Taxation. 27.1: Introduction. 27.2: The Two Prices with a Tax. 27.2: The Pre-Tax Position

Chapter 27: Taxation 27.1: Introduction We consider the effect of taxation on some good on the market for that good. We ask the questions: who pays the tax? what effect does it have on the equilibrium

### AGEC 105 Spring 2016 Homework 7. 1. Consider a monopolist that faces the demand curve given in the following table.

AGEC 105 Spring 2016 Homework 7 1. Consider a monopolist that faces the demand curve given in the following table. a. Fill in the table by calculating total revenue and marginal revenue at each price.

### The Efficiency of Markets. What is the best quantity to be produced from society s standpoint, in the sense of maximizing the net benefit to society?

The Efficiency of Markets What is the best quantity to be produced from society s standpoint, in the sense of maximizing the net benefit to society? We need to look at the benefits to consumers and producers.

### Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!!

Practice Multiple Choice Questions Answers are bolded. Explanations to come soon!! For more, please visit: http://courses.missouristate.edu/reedolsen/courses/eco165/qeq.htm Market Equilibrium and Applications

### or, put slightly differently, the profit maximizing condition is for marginal revenue to equal marginal cost:

Chapter 9 Lecture Notes 1 Economics 35: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are profit maximizing.

### Chapter. Perfect Competition CHAPTER IN PERSPECTIVE

Perfect Competition Chapter 10 CHAPTER IN PERSPECTIVE In Chapter 10 we study perfect competition, the market that arises when the demand for a product is large relative to the output of a single producer.

### We will study the extreme case of perfect competition, where firms are price takers.

Perfectly Competitive Markets A firm s decision about how much to produce or what price to charge depends on how competitive the market structure is. If the Cincinnati Bengals raise their ticket prices

### Chapter 7: Market Structure in Government and Nonprofit Industries. Soft Drinks. What is a Market? Do NFPs Compete? Some NFPs Compete Directly

Chapter 7: Market Structure in Government and Nonprofit Industries Soft Drinks HTTP:/www.economics.emory.edu/Working_Pa pers/wp/2008wp/frisvold_08_08_paper.pdf What is a Market? A market is a process in

### Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review

Chapter 22 The Cost of Production Extra Multiple Choice Questions for Review 1. Implicit costs are: A) equal to total fixed costs. B) comprised entirely of variable costs. C) "payments" for self-employed

### Jason Welker 2009 Zurich International School

1 AP Microeconomics: Exam Study Guide Format: 60 MC questions worth 66.67% of total. 70 minutes to answer 20 questions are definitional Example: The unemployment rate measures the percentage of (A) people

### 4. Market Structures. Learning Objectives 4-63. Market Structures

1. Supply and Demand: Introduction 3 2. Supply and Demand: Consumer Demand 33 3. Supply and Demand: Company Analysis 43 4. Market Structures 63 5. Key Formulas 81 2014 Allen Resources, Inc. All rights

### Economics 10: Problem Set 3 (With Answers)

Economics 1: Problem Set 3 (With Answers) 1. Assume you own a bookstore that has the following cost and revenue information for last year: - gross revenue from sales \$1, - cost of inventory 4, - wages

### MATH MODULE 5. Total, Average, and Marginal Functions. 1. Discussion M5-1

MATH MODULE Total, Average, and Marginal Functions 1. Discussion A very important skill for economists is the ability to relate total, average, and marginal curves. Much of standard microeconomics involves

### PART A: For each worker, determine that worker's marginal product of labor.

ECON 3310 Homework #4 - Solutions 1: Suppose the following indicates how many units of output y you can produce per hour with different levels of labor input (given your current factory capacity): PART

### Solution to Homework Set 7

Solution to Homework Set 7 Managerial Economics Fall 011 1. An industry consists of five firms with sales of \$00 000, \$500 000, \$400 000, \$300 000, and \$100 000. a) points) Calculate the Herfindahl-Hirschman

### Course: Economics I. Author: Ing. Martin Pop

Course: Economics I Author: Ing. Martin Pop Contents Introduction 1. Characteristics of imperfect competition. The main causes of imperfect competition 2. Equilibrium firms in imperfect competition 3.

### Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2

Monopoly: static and dynamic efficiency M.Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004; ch. 2 Economics of Competition and Regulation 2015 Maria Rosa Battaggion Perfect

### Pricing and Output Decisions: i Perfect. Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young

Chapter 9 Pricing and Output Decisions: i Perfect Competition and Monopoly M i l E i E i Managerial Economics: Economic Tools for Today s Decision Makers, 4/e By Paul Keat and Philip Young Pricing and

### AP Microeconomics Review

AP Microeconomics Review 1. Firm in Perfect Competition (Long-Run Equilibrium) 2. Monopoly Industry with comparison of price & output of a Perfectly Competitive Industry 3. Natural Monopoly with Fair-Return

### , to its new position, ATC 2

S171-S184_Krugman2e_PS_Ch12.qxp 9/16/08 9:22 PM Page S-171 Behind the Supply Curve: Inputs and Costs chapter: 12 1. Changes in the prices of key commodities can have a significant impact on a company s

### CHAPTER 11 PRICE AND OUTPUT IN MONOPOLY, MONOPOLISTIC COMPETITION, AND PERFECT COMPETITION

CHAPTER 11 PRICE AND OUTPUT IN MONOPOLY, MONOPOLISTIC COMPETITION, AND PERFECT COMPETITION Chapter in a Nutshell Now that we understand the characteristics of different market structures, we ask the question

### MA.8.A.1.2 Interpret the slope and the x- and y-intercepts when graphing a linear equation for a real-world problem. Constant Rate of Change/Slope

MA.8.A.1.2 Interpret the slope and the x- and y-intercepts when graphing a linear equation for a real-world problem Constant Rate of Change/Slope In a Table Relationships that have straight-lined graphs

### Pure Competition urely competitive markets are used as the benchmark to evaluate market

R. Larry Reynolds Pure Competition urely competitive markets are used as the benchmark to evaluate market P performance. It is generally believed that market structure influences the behavior and performance

### chapter Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost

chapter 8 Behind the Supply Curve: >> Inputs and Costs Section 2: Two Key Concepts: Marginal Cost and Average Cost We ve just seen how to derive a firm s total cost curve from its production function.

### Midterm Exam #1 - Answers

Page 1 of 9 Midterm Exam #1 Answers Instructions: Answer all questions directly on these sheets. Points for each part of each question are indicated, and there are 1 points total. Budget your time. 1.

Professor Scholz Posted: 11/10/2009 Economics 101, Problem Set #9, brief answers Due: 11/17/2009 Oligopoly and Monopolistic Competition Please SHOW your work and, if you have room, do the assignment on

### Econ 202 Exam 3 Practice Problems

Econ 202 Exam 3 Practice Problems Principles of Microeconomics Dr. Phillip Miller Multiple Choice Identify the choice that best completes the statement or answers the question. Chapter 13 Production and

### CHAPTER 6 MARKET STRUCTURE

CHAPTER 6 MARKET STRUCTURE CHAPTER SUMMARY This chapter presents an economic analysis of market structure. It starts with perfect competition as a benchmark. Potential barriers to entry, that might limit

### NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Midterm II April 30, 2008

NAME: INTERMEDIATE MICROECONOMIC THEORY SPRING 2008 ECONOMICS 300/010 & 011 Section I: Multiple Choice (4 points each) Identify the choice that best completes the statement or answers the question. 1.

### AP Microeconomics Chapter 12 Outline

I. Learning Objectives In this chapter students will learn: A. The significance of resource pricing. B. How the marginal revenue productivity of a resource relates to a firm s demand for that resource.

### Part 1 : 07/27/10 21:30:31

Question 1 - CIA 593 III-64 - Forecasting Techniques What coefficient of correlation results from the following data? X Y 1 10 2 8 3 6 4 4 5 2 A. 0 B. 1 C. Cannot be determined from the data given. D.

### Econ 201 Lecture 17. The marginal benefit of expanding output by one unit is the market price. Marginal cost of producing corn

Econ 201 Lecture 17 The Perfectly Competitive Firm Is a Taker (Recap) The perfectly competitive firm has no influence over the market price. It can sell as many units as it wishes at that price. Typically,