# PROBLEM SET #6: PRODUCTION COSTS, PERFECT COMPETITION, MONOPOLY, PRICE DISCRIMINATION

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Professor Gregory Clark ECON 1A, Fall 2000 PROBLEM SET #6: PRODUCTION COSTS, PERFECT COMPETITION, MONOPOLY, PRICE DISCRIMINATION Notes: If the total cost function of a firm has the form TC = a + bq + cq 2, then the marginal cost of the firm is MC = b + 2cq. Competitive Markets 1. Suppose Bella's Birkenstocks produces sandals in the perfectly competitive sandal market. The total cost of production in the short run is STC = 64 + q 2. The long run total cost LTC is also 64 + q 2, except that LTC = 0 at q = 0 in the long run (i.e. LTC(0) = 0, LTC(1) = 65, LTC(2) = 69 etc.). a. What are SATC, SAVC and SMC? SATC = 64/q + q, SAVC = q, SMC = 2q b. If the price of sandals is \$32, what is Bella's production? q=16. What is the economic profit? \$192 c. If the price for sandals were \$8, what is Bella's production? q= 4 What is her economic profit? -\$48 Should she shut down? No, because price is still greater than SAVC at q=4 which is \$4. Looking at it another way, if she did shut down, her profit would be even lower at - \$64. d. Is there any price which would cause Bella to shut down in the short run? No. For any price p, SMC=p implies 2q=p or p = 2 x SAVC. Thus, any positive price will always be larger than SAVC and therefore Bella should only shut down with p=0. e. What is Bella's short run supply curve? From the lack of a shut-down point and MC=p, we have S(p) = 2q.

2 3. In the short run there are 19 other sandal producers, each with the same costs as Bella. a. What is industry output at a price of \$32? Q = 16 x 20 = 320 b. What is the industry short run supply curve? q=(0.5)p, Q = 20q = 20(0.5)p = 10p, S(p) = 10p c. If the demand for sandals is Q = P, how many sandals are sold in the short run with 20 producers? D(p) = S(p): p=10p, p=\$32 & Q=320 What is the profit earned by each company? \$192 (p=\$32 implies same conditions as problem 2b.) d. If the sandal industry is a constant cost industry in the long run, what is the long run price and quantity? LMC=LATC: 2q = 64/q + q, q=8, p = MC =2q = 16. How many firms are there in the industry? Q = D(16) = = 480, # firms = Q/q = 480/8 = 60 e. Is the constant cost assumption reasonable? Yes, not specialized labor 4. Which of the following industries will be constant cost competitive industries, and which increasing cost. a. Wheat production? Increasing Cost: Because most land is not particularly good for wheat production, the marginal productivity of each additional acre will fall while the cost will rise for compensating inputs such as irrigation. (Land is a specialized input.) b. Wine production? Increasing Cost (same as above). c. Paper clip production? Constant Cost: paper clip production requires a very small part of steel output and can therefore expect a constant price for steel, no matter how many paper clips are produced. (The steel in paper clips is not a specialized input.) d. Paper cup production? Constant Cost:: similar reasoning except we are now concerned with paper-pulp and the trees used to make paper pulp instead of steel.

3 5. What is producer surplus in a constant cost competitive industry in the long run? Explain. Zero: Long run supply curve is a horizontal line equal to minimum long run average cost (such as \$16 above with problem 3d) Therefore, since there is no area between price and the supply curve, there is no producer surplus. 6. The US shirt industry is perfectly competitive and is in long-run equilibrium. There are 10 firms each with a total cost function of STC = 9+q 2. The long run total costs are the same except that the fixed costs are not incurred if the firm does not produce. The number of firms is fixed in the short run, but can change in the long run. Imports are supplied with infinite elasticity at P = \$8. a. Draw the long run average and marginal cost curve of one US firm. At what quantity is LAC minimized? See separate page for graph. LAC is minimized when LAC=MC: 9/q + q = 2q, q=3. b. Assuming the industry is constant cost in the long run draw the domestic industry long-run supply curve. On the same graph draw the domestic industry short-run supply curve. See separate page for graph. Long run domestic supply curve is found by setting price equal to marginal cost at minimum LAC: p=(2)(3)=6, this supply curve is a horizontal line at p=6. In the short run, the supply curve of each firm is S(p) = (0.5)q (just like problem 2e). For the industry, Q = 10q = 10(0.5)p = 5p, so that S(p) = 5p (very much like problem 3b). c. Draw the short-run and long-run total supply curve (including imports). See separate page for graph. In the long run, the domestic industry will supply any quantity for a price of \$6, and therefore no one will buy the \$8 imports, leaving the long-run supply curve as a horizontal line at \$6. Put another way, at a price of \$6, importers will supply zero shirts, so that the long run total supply curve will be identical to the long run domestic supply curve. In the short run, as long as the domestic supply curve is below \$8, importers will not sell any shirts and the total supply curve will be identical to the domestic supply curve. However, if the domestic supply curve is at or above \$8, then the importers will shirts at \$8 each, and the total supply curve will remain flat at \$8 (see graph). The cutoff point for these two parts of the curve is Q =S(8) = (5)(8) = 40.

4 d. Suppose the demand curve is Q d = P. What is price, quantity supplied domestically, and imports in the short-run? In the long-run? Short run. With only domestic supply, D(p)=S(p): p = 5p, p=\$10. Since this is greater than the \$8 price at which importers are willing to supply, the price will be \$8 and total demand will be D(8) = 70 shirts. Domestic producers will then supply 40 shirts (calculated above in part (e)) and importers will supply the remaining 30 shirts. Long run. In the long run, domestic supply is defined p = \$6, so that domestic quantity is given by D(6) = 90 shirts. We have already seen that importers will not supply any quantity at this price (so that a total of 90 shirts are supplied in the long run). e. Describe the adjustment process from the short-run to the long-run. In the short run, each firm will supply (0.5)(8) = 4 shirts, and make an (economic) profit of (8)(4) - (9+16) = \$7. Over time, this excess profit will attract other firms to the industry, shifting the domestic supply curve to the right. Starting with the 18 th firm, domestic producers will drive price below \$8 with ever lower profits. As price approaches \$6, the profit of individual firms will approach zero. f. Ross Perot proposes banning shirt imports. Who would gain and who lose in the shortrun? What would be the short-run deadweight loss? Without import competition, market equilibrium will be determined by the demand and short run domestic supply curves, with p=\$10 and Q=(5)(10) = 50 shirts (see part (d)). Then each firm will supply 5 shirts with a profit of (10)(5) - (9+25) = \$16. Clearly the firms win with these larger profits, and consumers lose because of the higher price. Consumers also lose because for many of them, the price now exceeds their willingness to pay, and they will not purchase a shirt when they would have with import competition. (Also, to acknowledge Perot s point, there will be more domestic jobs in shirt production and fewer jobs in the exporting countries). The deadweight loss will be the area between the domestic supply curve, the total supply curve and the demand curve: ½hb = ½ (10-8)(70-40) = \$30 (see separate graph). Note that this area does not look like the typical DWL triangle. g. Answer part (f) for the long-run.

5 In the long run, imports will not offer any competition to domestic producers, so there will be no change due to Perot s proposal. Hence, no winners, no losers and no deadweight loss. 7. Suppose that in NYC the daily demand for taxi rides is Q = P where P is the price in \$. Suppose also that the daily cost of operating each cab is a fixed \$100 dollar rental cost per vehicle, plus a variable cost of q 2 /100, where q is the number of cab rides per cab per day. (a) What is the long run total cost function of each cab? LTC = q 2 /100 per day. (b) If the market is a constant cost competitive one, what is the long-run price of a cab ride? Minimum cost: MC=LAC, q/50 = 100/q + q/100, solved to find q = 100. Then p = MC = 100/50 = 2. What is the number of rides each cab supplies and the number of cabs operating? 19. (c) Found above that q=100. Then Q = D(2) = = 1900, and n = Q/q = What is consumer surplus and producer surplus in the taxi cab market? Inverse demand function: P = 21 Q/100 Consumer Surplus: ½hb = ½ (21-2)(1900) = \$18,050 Producer Surplus: \$0 (horizontal supply curve) (d) Does the market achieve the condition for efficiency that p=mc. Explain. As above with part (b), we have assumed that in the long run p=mc. Another way of looking at this is to note that in a competitive market, MC defines the supply curve of every firm, and therefore price has to equal marginal cost. (e) Suppose that a tax of \$3 per ride is imposed. What is the new market price? There is no change in the price received by the cabs (after taxes are passed back to the government) because this is determined by minimum LAC and remains at \$2. The effective price for consumers is then \$5 = \$2 + \$3. What is number of rides per day, and number of cabs? Then the number of rides per day is Q = D(5)=1,600, and the number of cabs is Q/q = 16.

6 (f) What is the deadweight cost of the tax per day? ½hb = ½ (3)(1,900-1,600) = \$450

7 Monopoly, Price Discrimination 8. Kurt Vile produces and distributes the Libertarian Magazine, "Anarchy." Demand is given by P = 55-2Q. His cost function is TC = 100-5Q + Q 2. a. What is Kurt s marginal revenue as a function of Q? MR = 55 4Q b. If Kurt wants to maximize profits, what price does he charge? MC=MR: Q = 55 4Q, 6Q = 60, Q = 10, p = 55 2(10) = 35 How much profit and consumer surplus is generated at this price? Profit: (35)(10) (100 5(10) + 100) = = \$200 Consumer Surplus: ½hb = ½ (55-35)(10) = \$100

8 c. If Kurt wants to maximize total social surplus what price does he charge? P=MC, intersection of demand and MC: 55-2Q = -5+2Q, 60=4Q, Q=15, p=55-2(15)= 25. What are his profits at this price? (25)(15) - (100-5(15)+225) = = \$125 d. What is the deadweight loss if profits are maximized? MC(10) = = 15, DWL = ½hb = ½ (35-15)(15-10) = \$50 9. Suppose the distributor charges Holiday Cinemas \$4 per ticket sold to rent the movie, STAR WARS 15: THE NEXT BILLION. Suppose the theater can seat a maximum of 200 people. Suppose also that the demand to see the movie is given by P = 10 - Q/10 in the afternoon, and P = 20 - Q/10 in the evening. (a) Calculate the profit maximizing price in the evening and the afternoon, and the number of people who see each show. (Using graphs to set up the problem will be helpful) Afternoon: MC=\$4, MR = 10 Q/5, MR=MC: 6=Q/5, Q=30, p = 10 30/10 = 7. Evening: MC=\$4, MR = 20 Q/5, MR=MC: 16=Q/5, Q=80, p = 20 80/10 = 12. (b) What is the amount of revenue paid to the movie distributor? 4(30+80) = \$440 (Total Profit: (30)(7) + (80)(12) 440 = = \$730) (c) Suppose that the distributor instead asks the theater owner for a flat fee of \$1000 to show the movie, with no charge per customer. Calculate whether or not the theatre owner would prefer this arrangement. Afternoon: MC=\$0, MR = 10 Q/5, MR=MC: Q=50, p=10-5=5, Rev = \$250 Evening: MC=\$0, MR = 20 Q/5, MR=MC: Q=100, p=20-10=10, Rev = \$1,000 Profit: \$250 + \$1,000 - \$1,000 = \$250, the theatre owner would not prefer this arrangement. (d) Show whether the fee per viewer of \$4 charged by the distributor, or the flat fee of \$1000 results in a more EFFICIENT outcome. 1 st Arrangement: Consumer Surplus: ½hb afternoon & evening: ½ (10-7)(30) + ½ (20-12)(80) = = \$365. Producer Surplus: (With constant MC, producer surplus is the rectangle with height equal to the difference between p and MC, and base equal to Q.) hb afternoon & evening: (7-4)(30) + (12-4)(80) = = \$730. Total Surplus: = \$1,095.

9 2 nd Arrangement: Consumer Surplus: ½hb afternoon & evening: ½ (10-5)(50) + ½ (20-10)(100) = = \$625. Producer Surplus: hb afternoon & evening: (5-0)(50) + (10-0)(100) = ,000 = \$1,250. Total Surplus: ,250 = \$1,875. Therefore, the 2 nd Arrangement is more efficient (with the flat fee). (e) What is the efficient price for admission in the afternoon and in the evening. The efficient price will depend on the arrangement: With 1 st : MC=P, P=4 both afternoon & evening (with Q=60 & Q=160). With 2 nd : MC=P, P=0 both afternoon & evening (with Q=100 & Q=200). 10. Auto dealerships are of two sorts. Those which bargain over prices, and those which sell only at the posted price. Customers report great dissatisfaction with dealers that bargain over prices. Yet the number of fixed price dealerships has been declining recently. Explain why. With fixed price dealerships, all buyers of the same car model will pay the same price, irrespective of their willingness to pay, as long they are willing to pay as least as much as the sticker price. However with bargaining, the dealership can post a higher sticker price and then bargain. If the dealership is good at this, they can peg the actual selling price closer to the buyer s willingness to pay and thus capture more of the buyer s consumer surplus. 11. Suppose that the demand for electricity by residential consumers is the same for all consumers and is given by P = 1 - Q/100 where P is the price per kw-hour in \$ and Q is the kwhours per week. Suppose that the marginal cost of supplying electricity is \$0.20 per kw-hour. (a) If the electricity company can charge a fixed fee as well as a price per unit, calculate the profit maximizing fee per week, the quantity of units sold, and the price charged. The electric company will charge a price per unit (p) equal to its marginal cost and then set the fixed fee (F) so that it captures all consumer surplus. Then in this case MC = p = \$0.20, so that quantity may be found with the demand function: 0.20 = 1 Q/100, Q = 80 kw-hours per week. With only this simple price, CS = ½hb = ½(1-0.2)(80) = \$32. Thus K = \$32 per week. (b) What is the consumer surplus under the profit maximizing pricing scheme? By construction, there is zero consumer surplus (after subtracting K). (c) Is the profit maximizing pricing scheme socially efficient? Explain.

10 This arrangement can be shown to be efficient in two ways. First, p=mc, that is the incremental payment for the last unit consumed equals the incremental cost of creating that last unit of output. Second, total surplus is maximized, even though all of this surplus is appropriated by the producer. 12. Suppose that it is proposed to run a train between Sacramento and San Francisco. The smallest train seats 150 people and the cost per trip is found to be \$2,500, irrespective of how many people travel. The demand for travel (in \$) is P = 40 - Q/5. (a) On a diagram draw the demand curve for service each day and the marginal cost curve. The marginal cost per passenger is \$0 up till 150 passengers, then it rises steeply since a new train has to be added. See separate page for graph. (b) What will happen if a private firm tries to provide the service and can charge only one price? Explain. The private firm will try to maximize profits by setting MC=MR: 0 = 40 Q/(2.5), Q = 100, p = =20, and profit is (20)(100) - 2,500 = -\$500. Thus, at best the firm will operate at a loss. So the private firm will not offer service. (c) Show what the socially efficient price for the service is, and that it is socially beneficial to provide the service. The socially efficient price is to set p = MC = \$0 up till the train is full. After that the price has to be set to ration the demand so that exactly 150 people want to use the train. So P = 40 (150)/5 = 10. At a price of 10, the total surplus from running the train (CS+PS) is ½ (40-10)(150) + 10?150 = 3,750. Since total surplus is larger than the cost, it is a socially beneficial to provide this service. (d) If the private firm was able to effectively price discriminate would it provide the service and would it provide it at efficient levels? Explain. With perfect price discrimination, the private firm could capture all the consumer surplus and then obtain a profit of 3,750-2,500 = \$1,250. So it would operate the service.

### PROBLEM SET #6: PERFECT COMPETITION,

Professor Gregory Clark ECON 1A, Spring 2002 PROBLEM SET #6: PERFECT COMPETITION, Notes: If the total cost function of a firm has the form TC = a + bq + cq 2, then the marginal cost of the firm is MC =

### 12 MONOPOLY. Chapter. Key Concepts

Chapter 12 MONOPOLY Key Concepts Market Power Monopolies have market power, the ability to affect the market price by changing the total quantity offered for sale. A monopoly is a firm that produces a

### Chapter 9: Perfect Competition

Chapter 9: Perfect Competition Perfect Competition Law of One Price Short-Run Equilibrium Long-Run Equilibrium Maximize Profit Market Equilibrium Constant- Cost Industry Increasing- Cost Industry Decreasing-

### Chapter 10. Perfect Competition

Chapter 10 Perfect Competition Chapter Outline Goal of Profit Maximization Four Conditions for Perfect Competition Short run Condition For Profit Maximization Short run Competitive Industry Supply, Competitive

### Final Exam 9 December 2008

Eco 301 Name Final Exam 9 December 2008 125 points. Please write all answers in ink. Please use pencil and a straight edge to draw graphs. Allocate your time efficiently. 1. Suppose a perfectly discriminating

### Eco 200 Group Activity 4 Key Chap 13 & 14 & 15

Eco 200 Group Activity 4 Key Chap 13 & 14 & 15 Chapter 13: 1. 4 th Edition: p. 285, Problems and Applications, Q4 3 rd Edition: p. 286, Problems and Applications, Q4 a. The following table shows the marginal

### Monopoly. Problem 1 (APT 93, P3) Sample answer:

Monopoly Problem 1 (APT 93, P3) A single airline provides service from City A to City B. a) Explain how the airline will determine the number of passengers it will carry and the price it will charge. b)

### Answers to Text Questions and Problems Chapter 8

Answers to Text Questions and Problems Chapter 8 Answers to Review Questions 1. The pure monopolist, the oligopolist, and the monopolistically competitive firm all face downward-sloping demand curves.

### CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY REVIEW QUESTIONS 1. Why would a firm that incurs losses choose to produce rather than shut down? Losses occur when revenues do not cover total costs.

### Perfect Competition and Pure Monopoly

In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Perfect Competition

### Summary Chapter 12 Monopoly

Summary Chapter 12 Monopoly Defining Monopoly - A monopoly is a market structure in which a single seller of a product with no close substitutes serves the entire market - One practical measure for deciding

### Monopoly. Chapter 13. Monopoly and How It Arises. Single-price Monopoly. Monopoly and Competition Compared. Price Discrimination

CHAPTER CHECKLIST Monopoly Chapter 13 1. Explain how monopoly arises and distinguish between single-price monopoly and price-discriminating monopoly. 2. Explain how a single-price monopoly determines its

### Economics 103h Fall 2012: Part 1 of review questions for final exam

Economics 103h Fall 2012: Part 1 of review questions for final exam This is the first set of review questions. The short answer/graphing go through to the end of monopolistic competition. The multiple

### 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

### Economics 165 Winter 2002 Problem Set #2

Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs

### 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)

### Find the competitive equilibrium. The competitive equilibrium is where supply equals demand. Since MC=S, where MC = 2Q/3

Problem Set #13-Key Sonoma State University Economics 305-Intermediate Microeconomic Theory Dr. Cuellar (1) Consider the following demand and cost functions for a monopolistic firm. The industry demand

### LECTURE #13: MICROECONOMICS CHAPTER 15

LECTURE #13: MICROECONOMICS CHAPTER 15 I. WHY MONOPOLIES ARISE A. Competitive firms are price takers; a Monopoly firm is a price maker B. Monopoly: a firm that is the sole seller of a product without close

### Defn. Market power the abiliby of a single economic actor (or small group of actors) to have a substantial influence on market prices.

Notes for Chapter 15 Monopoly Firms in perfect competition face the most competition. (They have no market power.) Monopolies face the least competition. (They have the most market power.) Defn. Market

### 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

### (Perfect) Competition

(Perfect) Competition (Perfect) Competition The model of perfect competition is based on the following assumptions: (Perfect) Competition The model of perfect competition is based on the following assumptions:

### ECON 600 Lecture 3: Profit Maximization Π = TR TC

ECON 600 Lecture 3: Profit Maximization I. The Concept of Profit Maximization Profit is defined as total revenue minus total cost. Π = TR TC (We use Π to stand for profit because we use P for something

### 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

### 5. The supply curve of a monopolist is A) upward sloping. B) nonexistent. C) perfectly inelastic. D) horizontal.

Chapter 12 monopoly 1. A monopoly firm is different from a competitive firm in that A) there are many substitutes for a monopolist's product but there are no substitutes for a competitive firm's product.

### 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

### Chapter 6 Competitive Markets

Chapter 6 Competitive Markets After reading Chapter 6, COMPETITIVE MARKETS, you should be able to: List and explain the characteristics of Perfect Competition and Monopolistic Competition Explain why a

### Unit Perfect Competition Unit Overview

Unit 2.3.2 - erfect competition Assumptions of the model Demand curve facing the industry and the firm in perfect competition rofit-maximizing level of output and price in the short-run and long-run The

### ECON 202: Principles of Microeconomics. Chapter 11 Firms in Perfectly Competitive Markets

ECON 202: Principles of Microeconomics Chapter 11 Firms in Perfectly Competitive Markets Firms in Perfectly Competitive Markets 1. Market Structures. 2. Perfectly Competitive Markets. 3. Maximizing Profit

### Firms in Perfectly Competitive Markets

Chapter 11 Firms in Perfectly Competitive Markets Chapter Outline 11.1 LEARNING OBJECTIVE 11.1 Perfectly Competitive Markets Learning Objective 1 Define a perfectly competitive market, and explain why

### Tutorial 1. Monopoly and Price Discrimination.

Tutorial 1. Monopoly and Price Discrimination. Question 1. Suppose there are 10 students in a class and teacher brings a bag with 10 candies. Assume all students have identical preferences and have positive

### Lecture 6 Part I. Markets without market power: Perfect competition

Lecture 6 Part I Markets without market power: Perfect competition Market power Market power: Ability to control, or at least affect, the terms and conditions of the exchanges in which one participates

### Cosumnes River College Principles of Microeconomics Problem Set 7 Due April 9, 2015

Name: Solutions Cosumnes River College Principles of Microeconomics Problem Set 7 Due April 9, 21 Spring 21 Prof. Dowell Instructions: Write the answers clearly and concisely on these sheets in the spaces

### Problems on Perfect Competition & Monopoly

Problems on Perfect Competition & Monopoly 1. True and False questions. Indicate whether each of the following statements is true or false and why. (a) In long-run equilibrium, every firm in a perfectly

### Chapter 11 Perfect Competition

Chapter 11 Perfect Competition Perfect Competition Conditions for Perfectly competitive markets Product firms are perfect substitutes (homogeneous product) Firms are price takers Reasonable with many firms,

### Intermediate Microeconomics. Chapter 13 Monopoly

Intermediate Microeconomics Chapter 13 Monopoly Non-competitive market Price maker = economic decision maker that recognizes that its quantity choice has an influence on the price at which it buys or sells

### 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

### Econ 101 Kong CMP final review session - solution 2014 fall. Benji Huang

Econ 101 Kong CMP final review session - solution 2014 fall Benji Huang practice monopoly 1 A monopoly make positive economic profit in the long run because. A) can; barriers to entry prevent other firms

### Mod 59: Graphing Perfect Competition

Learning Targets: I Can Evaluate a perfectly competitive firm s situation using a graph. Determine a perfect competitor s profit or loss. Explain how a firm decides whether to produce or shut down in the

### 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

### 11 PERFECT COMPETITION. Chapter. Key Concepts. Perfectly Competitive Firm s Demand Curve

Chapter 11 PERFECT COMPETITION Key Concepts FIGURE 11.1 Perfectly Competitive Firm s Demand Curve Competition Perfect competition is an industry with many firms, each selling an identical good; many buyers;

### UNIT 6. Pricing under different market structures. Perfect Competition

UNIT 6 ricing under different market structures erfect Competition Market Structure erfect Competition ure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the

### 1 st Exam. 7. Cindy's cross-price elasticity of magazine demand with respect to the price of books is

1 st Exam 1. Marginal utility measures: A) the total utility of all your consumption B) the total utility divided by the price of the good C) the increase in utility from consuming one additional unit

### PERFECT COMPETITION STUDY UNIT 9

PERFECT COMPETITION STUDY UNIT 9 STUDY OBJECTIVES Define and indicate the characteristics of a perfectly competitive market Explain the demand curve under perfect competition Draw the demand curve for

### 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) Perfect competition occurs in a market where there are A) a few firms producing goods which differ

### Lecture 8: Market Structure and Competitive Strategy. Managerial Economics September 11, 2014

Lecture 8: Market Structure and Competitive Strategy Managerial Economics September 11, 2014 Focus of This Lecture Examine optimal price and output decisions of managers operating in environments with

### C H A P T E R 8. Profit Maximization and Competitive Supply CHAPTER OUTLINE

C H A P T E R 8 Profit Maximization and Competitive Supply CHAPTER OUTLINE 8.1 Perfectly Competitive Markets 8.2 Profit maximization 8.3 Marginal Revenue, Marginal Cost, and Profit Maximization 8.4 Choosing

### AP Microeconomics Unit 5 Problem Set

Goldwasser AP Microeconomics Unit 5 Problem Set NAME 1. For each of the following, is the industry perfectly competitive? Referring to market share, standardization of the product, and/or free entry and

### 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

### Chapter 9 Perfect competition and monopoly: The limiting cases of market structure

Chapter 9 Perfect competition and monopoly: The limiting cases of market structure avid Begg, Stanley Fischer and Rudiger ornbusch, Economics, 6th Edition, McGraw-Hill, 2000 Power Point presentation by

### Principles of Microeconomics

Principles of Microeconomics David C. Broadstock December 25, 2013 The following questions are to be completed by hand and submitted during the final class on December 23rd. Final homework questions Question

### Perfect Competition. Chapter 12

CHAPTER CHECKLIST Perfect Competition Chapter 12 1. Explain a perfectly competitive firm s profit maximizing choices and derive its supply curve. 2. Explain how output, price, and profit are determined

### 1 of 18 10/19/ :51 PM

1 of 18 10/19/2013 12:51 PM Which of the following is true about a competitive market supply curve? It is horizontal. It is downward-sloping to the right. It is the sum of the marginal cost curves of all

### 11 PERFECT COMPETITION. Chapt er. Key Concepts. What is Perfect Competition?

Chapt er 11 PERFECT COMPETITION Key Concepts What is Perfect Competition? Perfect competition is an industry with many firms, each selling an identical good; many buyers; no restrictions on entry into

### CHAPTER 11 MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 1 st Edition (Study Guide 2008)

CHAPTER 11 MARKETS WITHOUT POWER Microeconomics in Context (Goodwin, et al.), 1 st Edition (Study Guide 2008) Chapter Summary This chapter presents the traditional, idealized model of perfect competition.

### Unit 7. Firm behaviour and market structure: monopoly

Unit 7. Firm behaviour and market structure: monopoly Learning objectives: to identify and examine the sources of monopoly power; to understand the relationship between a monopolist s demand curve and

### 8.1 Perfect Competition

8.1 Perfect Competition Chapter 8 Competitive Firms and Markets Market structure provides information about how firms operating in the market will behave; it is a function of: the number of firms in the

### 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

### Chapter 14: Firms in Competitive Markets. Total revenue = price per unit sold number of units sold = p q

Chapter 14: Firms in Competitive Markets Profit and Revenue The firm's goal is to maximize profit. Profit = total revenue - total cost (opportunity cost) Total revenue = price per unit sold number of units

### Labelling Graph Axis Correctly

Labelling Graph Axis Correctly The Industry Price S D The Firm Quantity MC AC AR=MR Output Perfect Competition All of the units are sold at the same price because no single buyer or seller is large enough

### Review for the Midterm Exam.

Review for the Midterm Exam. 1. Chapter 1 The principles of decision making are: o People face tradeoffs. o The cost of any action is measured in terms of foregone opportunities. o Rational people make

### 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

### 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,

### Econ 201 Final Exam. Douglas, Fall 2007 Version A Special Codes 00000. PLEDGE: I have neither given nor received unauthorized help on this exam.

, Fall 2007 Version A Special Codes 00000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 201 Final Exam 1. For a profit-maximizing monopolist, a. MR

### I. The Monopolist, Market Size and Price Discrimination

Economics 335 February 16, 1999 Notes 5: Monopoly and Price Discrimination I. The Monopolist, Market Size and Price Discrimination A. Definition of a monopoly A firm is a monopoly if it is the only supplier

### Chapter 8 Profit Maximization and Competitive Supply

Chapter 8 Profit Maximization and Competitive Supply Teaching Notes This chapter begins by explaining what economists mean by a competitive market and why it makes sense to assume that firms try to maximize

### Tutorial 6 - Perfect Competition

Tutorial 6 - Perfect Competition March 2014 Problem 1 In a small, but perfectly competitive market for pineapples, there are 8 identical growers. Each grower has the following cost function: C = 2 + 2q

### Price discrimination by a monopolist

Review Imperfect Competition: Monopoly Reasons for monopolies Monopolies problem: Choses quantity such that marginal costs equal to marginal revenue The social deadweight loss of a monopoly Price discrimination

### Monopoly and Perfect Competition Compared

Monopoly and Perfect Competition Compared I. Definitions of Efficiency A. Technological efficiency occurs when: Given the output produced, the costs of production (recourses used) are minimized. or Given

### Profit Maximization. 2. product homogeneity

Perfectly Competitive Markets It is essentially a market in which there is enough competition that it doesn t make sense to identify your rivals. There are so many competitors that you cannot single out

### The Revenue of a Competitive In perfect competition, average revenue equals the price of the good. Total revenue Average Revenue = = The Revenue of a

In this chapter, look for the answers to these questions: What is a perfectly competitive market? What is marginal revenue? How is it related to total and average revenue? How does a competitive firm determine

### Lab #11. Chapter 11 Perfect Competition

University of Lethbridge Department of Economics ECON 1010 Introduction to Microeconomics Instructor: Michael G. Lanyi Lab #11 Chapter 11 Perfect Competition 1) Perfect competition occurs in a market where

### How Wages Are Determined in Labor Markets

ACTIVITY 4-5 How Wages Are Determined in Labor Markets This activity examines how wages and employment are determined in two types of labor s. A perfectly competitive labor is one in which all buyers and

### Microeconomic FRQ s. Scoring guidelines and answers

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

### 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

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

Chapter 12 Monopoly - Sample Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Unregulated monopolies A) cannot change the market quantity.

### Chapter 11. Pricing with Market Power

Chapter 11 Pricing with Market Power Topics to be Discussed(Sec. 11.1-11.4) Capturing Consumer Surplus Price Discrimination Intertemporal Price Discrimination and Peak-Load Pricing The Two-Part Tariff

### Monopolistic Competition

In this chapter, look for the answers to these questions: How is similar to perfect? How is it similar to monopoly? How do ally competitive firms choose price and? Do they earn economic profit? In what

### 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

### Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

### Econ 170: Contemporary Economics Spring 2008 Exam 1 / Section F: SOLUTIONS. 1. Production possibilities and opportunity costs of missiles and houses

Econ 170: Contemporary Economics Spring 2008 Exam 1 / Section F: SOLUTIONS 1. Production possibilities and opportunity costs of missiles and houses The table below shows the tradeoff between different

### Econ 170: Contemporary Economics Spring 2008 Exam 1 / Section E: SOLUTIONS. 1. Production possibilities and opportunity costs of missiles and houses

Econ 170: Contemporary Economics Spring 2008 Exam 1 / Section E: SOLUTIONS 1. Production possibilities and opportunity costs of missiles and houses The table below shows the tradeoff between different

### Rutgers University Economics 102: Introductory Microeconomics Professor Altshuler Fall 2003

Rutgers University Economics 102: Introductory Microeconomics Professor Altshuler Fall 2003 Answers to Problem Set 10 Chapter 15 1. The following table shows revenue, costs, and profits, where quantities

### 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

### a. What is the marginal revenue curve of this monopolist? Take the demand curve and double the slope: MR=130-4Q

Economics 101 Spring 2011 Homework #6 Due 5/3/11 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 (legibly).

### University of Toronto February 18, ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 3

Department of Economics Prof. Gustavo Indart University of Toronto February 18, 2011 SOLUTIONS ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS: 1. The

### Firms in Perfectly Competitive Markets

Chapter 11 Firms in Perfectly Competitive Markets Chapter Summary Economists group industries into one of four market structures: Perfect competition, monopolistic competition, oligopoly, and monopoly.

### E201 Department Final Exam Questions, Sample Set Two

E201 Department Final Exam Questions, Sample Set Two Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. 1 Sue s opportunity cost to produce last

### N. Gregory Mankiw Principles of Economics. Chapter 14. FIRMS IN COMPETITIVE MARKETS

N. Gregory Mankiw Principles of Economics Chapter 14. FIRMS IN COMPETITIVE MARKETS Solutions to Problems and Applications 1. A competitive market is one in which: (1) there are many buyers and many sellers

### Solution to Selected Questions: CHAPTER 12 MONOPOLISTIC COMPETITION AND OLIGOPOLY

Chulalongkorn University: BBA International Program, Faculty of Commerce and Accountancy 900 (Section ) Chairat Aemkulwat Economics I: Microeconomics Spring 05 Solution to Selected Questions: CHAPTER MONOPOLISTIC

### 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 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition

CHAPTER 12 MARKETS WITH MARKET POWER Microeconomics in Context (Goodwin, et al.), 2 nd Edition Chapter Summary Now that you understand the model of a perfectly competitive market, this chapter complicates

### 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

### MC 2 AC 2 P 1 P 2 D. q Q 1 Q 2 Q

Perfect Competition Problem 1 (APT 93, P1) A perfectly competitive manufacturing industry is in long-run equilibrium. Energy is an important variable input in the production process and therefore the price

### Exam 1. Corn (bushels)

ECONOMICS 10-008 Dr. John Stewart Feb. 13, 2001 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Please note that

### 12.1 Why and How Firms Price Discriminate

Chapter 12 Pricing and Advertising 12.1 Why and How Firms Price Why does Disneyworld charge local residents \$369 for an annual pass and out-of-towners \$489? Why are airline fares less if you book in advance?

### Economic Efficiency, Government Price Setting, and Taxes

CHAPTER 4 Economic Efficiency, Government Price Setting, and Taxes Modified by: Changwoo Nam 1 Economic Efficiency, Government Price Setting, and Taxes A legally determined maximum price that sellers may

### CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall

e PART II I The Market System: Choices Made by Households and Firms e CASE FAIR OSTER PEARSON 2012 Pearson Education, Inc. Publishing as Prentice Hall PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I

### 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?