Question 1

(Figure: Profit-maximizing Quantity and Price III) What happens to the firm's profit-maximizing price and quantity following the increase in demand from D₁ to D₂?

Accepted Answer

The answer of (Figure: Profit-maximizing Quantity and Price III) What...

Question 2

An amusement park faces a demand curve of Q = 40 - 0.4P and marginal cost of MC = 1.25Q, where Q is measured in thousands of customers. The amusement park's profit-maximizing output level is ____thousand.

Accepted Answer

The profit-maximizing output level is where marginal revenue equals marginal cost. Marginal revenue is the derivative of total revenue, which is equal to price times quantity. So, MR = P - 0.4P = 0.6P. Setting MR equal to MC, we get 0.6P = 1.25Q. Substituting the demand curve, we get 0.6(40 - 0.4Q) = 1.25Q. Solving for Q, we get Q = 60.

Question 3

Research by Acemoglu and Linn, which examined pharmaceutical drug development, found that:

Accepted Answer

Acemoglu and Linn's research found that the size of the potential market is a significant factor in pharmaceutical companies' decisions to develop new drugs. A larger market size increases the potential profitability of developing a drug, thereby making it more likely that companies will invest in its development.

Question 4

A medical device manufacturer sells its sterilization equipment in a market with an inverse demand curve of P = 6,000 - 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. Suppose the Patient Protection and Affordable Care Act levies a tax on medical devices. Assume the tax raises the marginal cost of production from $4,000 to $4,400. After the tax, the profit-maximizing price ____ by $____.

Accepted Answer

The tax raises the marginal cost of production, which shifts the supply curve to the left. This leads to a higher equilibrium price and a lower equilibrium quantity. The profit-maximizing price increases by $200.

Question 5

A firm's demand curve is Q = 2 - 0.01P, where Q is measured in millions. The firm's marginal revenue when output is Q = 0.50 is $____.

Accepted Answer

The answer of A firm's demand curve is Q =...

Question 6

A profit-maximizing monopolist is selling 20,000 units of output at $1,400 per unit. The marginal cost of production is constant at $600. What happens if marginal cost rises to $680?

Accepted Answer

When a monopolist faces an increase in marginal cost, it will adjust its output and price to continue maximizing profit. The new marginal cost is still below the original price, indicating that the firm can still make a profit per unit sold, but it will produce and sell less than before because the increased cost reduces the profit margin per unit. The price will increase, but by less than the increase in marginal cost, because the monopolist also has to consider the demand curve's slope, which dictates that higher prices reduce quantity demanded.

Question 7

Suppose that a firm produces where MR = MC. To guarantee that the firm is maximizing its profit, confirm that the _____ derivative of the profit function is _____.

Accepted Answer

For a firm to be maximizing its profit, the condition MR = MC must be met at the point where the second derivative of the profit function is negative. This indicates that the profit function is concave down at that point, confirming a local maximum in terms of profit.

Question 8

Consider the demand curves facing two firms: For curve 1, a $4 decrease in price increases quantity demanded by 2 units. For curve 2, a $3 decrease in price increases quantity demanded by 1 unit. Curve _____ is steeper, so an expansion of output drives down marginal revenue more along _____.

Accepted Answer

The steepness of a demand curve is determined by how much quantity demanded changes in response to a price change. Curve 2 is steeper because a smaller decrease in price ($3 vs. $4) leads to a smaller increase in quantity demanded (1 unit vs. 2 units) compared to curve 1. Therefore, an expansion of output would drive down marginal revenue more along curve 2 than curve 1, due to its steeper nature and less responsiveness to price changes.

Question 9

A firm with market power has an inverse demand curve of P = 450 - 5Q and marginal cost of MC = 40Q, where Q is measured in thousands. What is the deadweight loss from market power at the firm's profit-maximizing output level?

Accepted Answer

To find the deadweight loss from market power, we first need to determine the profit-maximizing output level for the firm. The firm maximizes profit where marginal revenue (MR) equals marginal cost (MC). The marginal revenue curve can be derived from the inverse demand curve. Given P = 450 - 5Q, the total revenue (TR) is P*Q = (450Q - 5Q^2). The marginal revenue (MR) is the derivative of TR with respect to Q, which gives MR = 450 - 10Q.Setting MR equal to MC to find the profit-maximizing output:450 - 10Q = 40Q450 = 50QQ = 9 (thousands)At this quantity, the price from the demand curve is:P = 450 - 5*9 = 450 - 45 = 405The socially optimal output level occurs where price equals marginal cost (P = MC). Setting the inverse demand equal to the marginal cost to find the socially optimal output:450 - 5Q = 40Q450 = 45QQ = 10 (thousands)At this quantity, the price from the demand curve is:P = 450 - 5*10 = 450 - 50 = 400The deadweight loss (DWL) is the loss in total surplus, represented by the triangle between the demand curve and the MC curve from Q = 9 to Q = 10. The height of the triangle is the difference in price between the monopolistic price and the competitive price, which is 405 - 400 = 5. The base of the triangle is the difference in quantity, which is 10 - 9 = 1 (or 1000 units, since Q is in thousands).The area of the triangle (DWL) is 0.5 * base * height = 0.5 * 1000 * 5 = 2500. Since the quantities are in thousands and the price is in dollars, the deadweight loss is $2,500, not directly matching any of the provided options. However, considering the closest match or a possible mistake in calculation steps or interpretation, the intended answer might have been based on a different calculation or assumption not accurately reflected in the explanation. Given the options and typical calculation methods, there seems to be a misunderstanding in the calculation or the options provided do not accurately reflect the typical calculation for deadweight loss based on the given method.

Question 10

As Southwest Airlines began operating at various airports around the country:

Accepted Answer

Southwest Airlines is known for its low-cost business model, which typically leads to lower prices at airports where it operates. This, in turn, attracts more passengers, increasing the number of people using those airports. The phenomenon is often referred to as the "Southwest Effect."

Question 11

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph.  The profit-maximizing price for Zinfandelic is $____.

Accepted Answer

The answer of (Figure: Market for Wine Gift Baskets I)...

Question 12

A new product has a demand curve that can be expressed as  and the monopolist that produces it has a total cost curve of 
Where Q is output. The profit-maximizing level of output for this firm is Q = ____.

Accepted Answer

The answer of A new product has a demand curve...

Question 13

The following are conditions for the profit maximization condition EXCEPT:

Accepted Answer

The answer of The following are conditions for the profit...

Question 14

Suppose that a monopolist's inverse demand curve can be expressed as: P = 10,000 + 100Q - 10Q². The monopolist's total cost curve is: TC = 5,000Q. The price the monopolist charges to maximize profit is P = ____.

Accepted Answer

The answer of Suppose that a monopolist's inverse demand curve...

Question 15

Government encouragement of monopoly:

Accepted Answer

Government encouragement of monopoly through patents does indeed lead to higher consumer prices because it grants firms exclusive rights to produce and sell their innovations, reducing competition for those products. However, this mechanism encourages firms to innovate and bring new products to the market by providing them the incentive of temporary market power and the potential for significant profits, which can justify the costs and risks associated with research and development.

Question 16

Antitrust laws:

Accepted Answer

Antitrust laws are designed to prevent anti-competitive practices and ensure fair competition. They restrict firms from engaging in behaviors that would make markets less competitive, such as price fixing, monopolies, and other forms of collusion.

Question 17

Consider the following table for a monopolist to answer the question.  The profit-maximizing quantity for the monopolist is ____.

Accepted Answer

The answer of Consider the following table for a monopolist...

Question 18

Suppose a firm faces the inverse demand curve  . The firm has the total cost curve 
) Assuming that the firm operates in the market and maximizes profit, it will charge a price P = ____.

Accepted Answer

The answer of Suppose a firm faces the inverse demand...

Question 19

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _____, and the price in the perfectly competitive market would _____.

Accepted Answer

In a monopoly, the price increase is typically less than the increase in marginal cost because the monopolist seeks to maximize profit without losing too many customers. In a perfectly competitive market, the price equals the marginal cost, so if the marginal cost increases to $75, the price would also increase to $75.

Question 20

Market power occurs when a firm:

Accepted Answer

Market power refers to the ability of a firm to influence the price of its product, rather than being a price taker in a perfectly competitive market.

Quiz 9: Market Power and Monopoly

(Figure: Profit-maximizing Quantity and Price III) What happens to the firm's profit-maximizing price and quantity following the increase in demand from D₁ to D₂?

An amusement park faces a demand curve of Q = 40 - 0.4P and marginal cost of MC = 1.25Q, where Q is measured in thousands of customers. The amusement park's profit-maximizing output level is ____thousand.

Research by Acemoglu and Linn, which examined pharmaceutical drug development, found that:

A firm's demand curve is Q = 2 - 0.01P, where Q is measured in millions. The firm's marginal revenue when output is Q = 0.50 is $____.

A profit-maximizing monopolist is selling 20,000 units of output at $1,400 per unit. The marginal cost of production is constant at $600. What happens if marginal cost rises to $680?

Suppose that a firm produces where MR = MC. To guarantee that the firm is maximizing its profit, confirm that the _ derivative of the profit function is _.

Consider the demand curves facing two firms: For curve 1, a $4 decrease in price increases quantity demanded by 2 units. For curve 2, a $3 decrease in price increases quantity demanded by 1 unit. Curve _ is steeper, so an expansion of output drives down marginal revenue more along _.

A firm with market power has an inverse demand curve of P = 450 - 5Q and marginal cost of MC = 40Q, where Q is measured in thousands. What is the deadweight loss from market power at the firm's profit-maximizing output level?

As Southwest Airlines began operating at various airports around the country:

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph. The profit-maximizing price for Zinfandelic is $____.

A new product has a demand curve that can be expressed as and the monopolist that produces it has a total cost curve of Where Q is output. The profit-maximizing level of output for this firm is Q = ____.

The following are conditions for the profit maximization condition EXCEPT:

Suppose that a monopolist's inverse demand curve can be expressed as: P = 10,000 + 100Q - 10Q². The monopolist's total cost curve is: TC = 5,000Q. The price the monopolist charges to maximize profit is P = ____.

Government encouragement of monopoly:

Antitrust laws:

Consider the following table for a monopolist to answer the question. The profit-maximizing quantity for the monopolist is ____.

Suppose a firm faces the inverse demand curve . The firm has the total cost curve ) Assuming that the firm operates in the market and maximizes profit, it will charge a price P = ____.

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _, and the price in the perfectly competitive market would _.

Market power occurs when a firm:

Quiz 9: Market Power and Monopoly

(Figure: Profit-maximizing Quantity and Price III) What happens to the firm's profit-maximizing price and quantity following the increase in demand from D1 to D2?

An amusement park faces a demand curve of Q = 40 - 0.4P and marginal cost of MC = 1.25Q, where Q is measured in thousands of customers. The amusement park's profit-maximizing output level is ____thousand.

Research by Acemoglu and Linn, which examined pharmaceutical drug development, found that:

A firm's demand curve is Q = 2 - 0.01P, where Q is measured in millions. The firm's marginal revenue when output is Q = 0.50 is $____.

A profit-maximizing monopolist is selling 20,000 units of output at $1,400 per unit. The marginal cost of production is constant at $600. What happens if marginal cost rises to $680?

Suppose that a firm produces where MR = MC. To guarantee that the firm is maximizing its profit, confirm that the _____ derivative of the profit function is _____.

Consider the demand curves facing two firms: For curve 1, a $4 decrease in price increases quantity demanded by 2 units. For curve 2, a $3 decrease in price increases quantity demanded by 1 unit. Curve _____ is steeper, so an expansion of output drives down marginal revenue more along _____.

A firm with market power has an inverse demand curve of P = 450 - 5Q and marginal cost of MC = 40Q, where Q is measured in thousands. What is the deadweight loss from market power at the firm's profit-maximizing output level?

As Southwest Airlines began operating at various airports around the country:

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph. The profit-maximizing price for Zinfandelic is $____.

A new product has a demand curve that can be expressed as and the monopolist that produces it has a total cost curve of Where Q is output. The profit-maximizing level of output for this firm is Q = ____.

The following are conditions for the profit maximization condition EXCEPT:

Suppose that a monopolist's inverse demand curve can be expressed as: P = 10,000 + 100Q - 10Q2. The monopolist's total cost curve is: TC = 5,000Q. The price the monopolist charges to maximize profit is P = ____.

Government encouragement of monopoly:

Antitrust laws:

Consider the following table for a monopolist to answer the question. The profit-maximizing quantity for the monopolist is ____.

Suppose a firm faces the inverse demand curve . The firm has the total cost curve ) Assuming that the firm operates in the market and maximizes profit, it will charge a price P = ____.

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _____, and the price in the perfectly competitive market would _____.

Market power occurs when a firm:

(Figure: Profit-maximizing Quantity and Price III) What happens to the firm's profit-maximizing price and quantity following the increase in demand from D₁ to D₂?

Suppose that a firm produces where MR = MC. To guarantee that the firm is maximizing its profit, confirm that the _ derivative of the profit function is _.

Consider the demand curves facing two firms: For curve 1, a $4 decrease in price increases quantity demanded by 2 units. For curve 2, a $3 decrease in price increases quantity demanded by 1 unit. Curve _ is steeper, so an expansion of output drives down marginal revenue more along _.

Suppose that a monopolist's inverse demand curve can be expressed as: P = 10,000 + 100Q - 10Q². The monopolist's total cost curve is: TC = 5,000Q. The price the monopolist charges to maximize profit is P = ____.

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _, and the price in the perfectly competitive market would _.