Question 1

You are a manager in a perfectly competitive market.The price is $14.Your total cost curve is C(Q)= 10 + 4Q + 0.5Q².What level of output should you produce in the short run?

Accepted Answer

In a perfectly competitive market, the manager will produce the level of output where price (P) equals marginal cost (MC).

The marginal cost is the derivative of the total cost with respect to quantity (Q):

MC = dC/dQ = 4 + 0.5S1U1P12S1S1P0

Setting MC equal to the price of $14:

4 + 0.5S1U1P12S1S1P0 = 14

0.5S1U1P12S1S1P0 = 10

Solving for S1S1P0:

S1S1P0 = 20

Substituting back into the MC equation:

MC = 4 + 0.5(20) = 14

This means that the manager should produce 10 units in the short run to maximize profit.

Question 2

A linear demand function exhibits:

Accepted Answer

A linear demand function typically shows less elastic demand as output increases because the slope of the demand curve is constant, but the percentage change in quantity demanded relative to the percentage change in price (elasticity) decreases as one moves down the curve.

Question 3

In the long run,perfectly competitive firms produce a level of output such that:

Accepted Answer

The answer of In the long run,perfectly competitive firms produce...

Question 4

Which of the following is (are)basic feature(s)of a perfectly competitive industry?

Accepted Answer

All three statements are basic features of a perfectly competitive industry. In a perfectly competitive market, buyers and sellers have access to complete and accurate information, transaction costs are negligible, and there is free entry and exit for businesses. These conditions ensure that no single buyer or seller can influence the price of goods or services in the market, and that firms must always strive to produce at the lowest cost possible in order to remain competitive.

Question 5

What contributes to the existence of multiproduct firms?

Accepted Answer

Multiproduct firms exist because of the combination of economies of scope and cost complementarity. Economies of scope refer to the cost savings that a firm can achieve by producing multiple products together, while cost complementarity refers to the cost savings that a firm can achieve by producing complementary products together. Together, these concepts create an incentive for firms to produce multiple products, as it allows them to reduce their costs and increase their profitability. Additionally, the ability to produce multiple products can also be a competitive advantage, as it allows firms to offer a wider range of products and services to customers.

Question 6

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q)= 10 + 4Q + 0.5Q².What price should you charge in the short run?

Accepted Answer

In a perfectly competitive market, the firm maximizes profit by setting the price equal to marginal cost in the short run. The marginal cost is the derivative of the total cost function, MC(Q) = 4 + 0.5Q². Setting MC(Q) = $14, we get: 4 + 0.5Q² = 14 0.5Q² = 10 Q² = 20 Therefore, the firm should produce a quantity of 20 units and charge a price of $14. Option B is the correct choice.

Question 7

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q)= 10 + 4Q + 0.5Q².What will happen in the long run if there is no change in the demand curve?

Accepted Answer

In the long run, firms in a perfectly competitive market will enter if they can make a profit. Since the price is $14 and the marginal cost (MC) is less than $14 at some output levels, firms can make a profit, leading to entry.

Question 8

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing price?

Accepted Answer

To find the profit-maximizing price, we need to first find the monopolist's profit-maximizing quantity. We can do this by finding the monopolist's marginal revenue (MR) and setting it equal to its marginal cost (MC) at each plant. First, let's find the monopolist's total cost (TC). Adding the two cost functions together and simplifying, we get: TC = 80 + 0.15Q₁ + 0.05Q₂² Next, we can find the monopolist's total revenue (TR) by multiplying the price (P) by the quantity (Q): TR = PQ = (500 - 10P)Q Now, we can find the monopolist's marginal revenue (MR), which is the derivative of TR with respect to Q: MR = dTR/dQ = 500 - 20Q To find the profit-maximizing quantity, we need to set MR equal to MC at each plant. Taking the derivative of TC with respect to Q₁, we get: MC1 = dTC/dQ₁ = 0.15 Taking the derivative of TC with respect to Q₂, we get: MC2 = dTC/dQ₂ = 0.05² Setting MR equal to MC1 and solving for Q, we get: 500 - 20Q = 0.15 Q1 = 249.25 Setting MR equal to MC2 and solving for Q, we get: 500 - 20Q = 0.05² Q2 = 249.75² So the monopolist will produce 249.25 units at plant 1 and 249.75 units at plant 2. The total quantity produced is 499 units. To find the profit-maximizing price, we can plug the monopolist's quantity into the demand equation and solve for P: Q = 500 - 10P 499 = 500 - 10P P = $31.25 per unit Therefore, the best choice is C.

Question 9

A monopoly has produced a product with a patent for the last few years.The patent is going to expire.What will happen after the patent expires?

Accepted Answer

After the patent expires, other firms will be allowed to produce the same product, which will increase competition and potentially decrease prices. This is likely to attract new firms to enter the industry, resulting in a decrease in the incumbent's market share and potentially eliminating its status as a monopoly. The incumbent may still choose to produce at a lower price to remain competitive, but it will no longer enjoy the monopoly power it had during its patent-protected period.

Question 10

Chris raises cows and produces cheese and milk because he enjoys:

Accepted Answer

Chris enjoys economies of scope because he is able to produce multiple products (cheese and milk) using the same resources (cows) and potentially reduce his production costs. This is different from economies of scale, which refer to the cost advantages gained by increasing the scale of production of a single product. Cost complementarity refers to the way in which the cost of producing one product is reduced because of the production of another product, which is related to economies of scope. None of the answers accurately describe Chris's situation, except for B.

Question 11

The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7.Which of the following implications is (are)correct?

Accepted Answer

The number of efficient plants being less than 1 (0.7) suggests that the domestic market cannot support even one efficient plant, indicating a lack of competition and potential for monopoly in the absence of imports.

Question 12

A firm has a total cost function of C(Q)= 50 + 10Q^1/2.The firm experiences:

Accepted Answer

Economies of scale occur when increasing production leads to a lower average cost per unit. The given cost function C(Q) = 50 + 10Q suggests that as quantity (Q) increases, the total cost increases linearly, but the fixed cost (50) becomes spread out over more units, reducing the average cost per unit. This indicates economies of scale.

Question 13

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Accepted Answer

Owning a patent on its product is not a basic feature of a monopolistically competitive industry. In fact, monopolistic competition involves firms producing similar but not identical products, which implies that no single firm can hold a patent over its differentiated product. The other options; A, B, and C are basic features of monopolistic competition.

Question 14

Let the demand function for a product be Q = 100 − 2P.The inverse demand function of this demand function is:

Accepted Answer

The inverse demand function is obtained by solving the original demand function for P. 
Q = 100 − 2P 
2P = 100 − Q 
P = 50 − 0.5Q 
Therefore, the inverse demand function is P = 50 − 0.5Q.

Question 15

In the long run,monopolistically competitive firms produce a level of output such that:

Accepted Answer

In the long run, monopolistically competitive firms produce at a level where price (P) is greater than marginal cost (MC), indicating some degree of market power and the ability to set prices above production costs. They also produce where price equals average total cost (ATC), ensuring they are not making economic profits or losses in the long run. Additionally, because they do not produce at the minimum of the average cost curve due to product differentiation and market power, their ATC is higher than the minimum average costs. This combination of conditions reflects the unique characteristics of monopolistic competition, where firms have some control over pricing but face competition that drives economic profits to zero in the long run.

Question 16

A perfectly competitive firm faces a:

Accepted Answer

A perfectly competitive firm faces a market with many buyers and sellers of a homogenous product, and therefore it has no power to influence the market price. As a result, the demand curve faced by a perfectly competitive firm is perfectly elastic, meaning that any change in price will result in a proportional change in quantity demanded. Therefore, the best choice is A) a perfectly elastic demand function.

Question 17

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing level of output?

Accepted Answer

To find the profit-maximizing level of output, we first determine the total cost and revenue functions. The total cost (TC) is the sum of the costs of both plants: TC = CS1 + CS2 = 50 + 0.1QS1 + 30 + 0.05QS2. The demand function is Q = 500 - 10P, which can be rearranged to find the price as a function of quantity: P = 50 - 0.1Q. Total revenue (TR) is P*Q, which becomes (50 - 0.1Q)Q. To maximize profit, we set marginal cost (MC) equal to marginal revenue (MR). Since the cost functions of the plants differ, we allocate production to the more efficient plant (with lower marginal cost) first. Plant 2 has a lower marginal cost (0.05 per unit) than Plant 1 (0.1 per unit), so we maximize output from Plant 2 before using Plant 1. The correct allocation that maximizes profit given the constraints and cost structures is QS1 = 62.5 and QS2 = 125, as it balances the marginal costs with the overall demand and price structure efficiently.

Question 18

Which of the following is a correct representation of the profit maximization condition for a monopoly?

Accepted Answer

The profit maximization condition for a monopoly is MC = MR. This means that the monopolist will produce the quantity of output where marginal revenue (MR) equals marginal cost (MC) in order to maximize profits.

Question 19

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the condition for profit maximization?

Accepted Answer

The condition for profit maximization for a monopoly is to produce at the quantity where marginal revenue (MR) equals marginal cost (MC). Therefore, the correct condition is MC₁(Q₁) = MC₂(Q₂) = MR(Q₁ + Q₂). Options (A) and (C) are incorrect because they include the price (P) in the condition, whereas the profit maximization condition only depends on the quantity produced, the marginal cost, and marginal revenue. Option (D) is incorrect because it uses MR in one condition and P in the other, whereas both conditions should be based on the same variable, which is MR.

Question 20

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q)= 10 + 4Q + 0.5Q².What level of profits will you make in the short run?

Accepted Answer

The answer of You are a manager in a perfectly...

Quiz 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

You are a manager in a perfectly competitive market.The price is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What level of output should you produce in the short run?

A linear demand function exhibits:

In the long run,perfectly competitive firms produce a level of output such that:

Which of the following is (are) basic feature(s) of a perfectly competitive industry?

What contributes to the existence of multiproduct firms?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What price should you charge in the short run?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What will happen in the long run if there is no change in the demand curve?

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing price?

A monopoly has produced a product with a patent for the last few years.The patent is going to expire.What will happen after the patent expires?

Chris raises cows and produces cheese and milk because he enjoys:

The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7.Which of the following implications is (are) correct?

A firm has a total cost function of C(Q) = 50 + 10Q^1/2.The firm experiences:

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Let the demand function for a product be Q = 100 − 2P.The inverse demand function of this demand function is:

In the long run,monopolistically competitive firms produce a level of output such that:

A perfectly competitive firm faces a:

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing level of output?

Which of the following is a correct representation of the profit maximization condition for a monopoly?

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the condition for profit maximization?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What level of profits will you make in the short run?

Quiz 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

You are a manager in a perfectly competitive market.The price is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2.What level of output should you produce in the short run?

A linear demand function exhibits:

In the long run,perfectly competitive firms produce a level of output such that:

Which of the following is (are) basic feature(s) of a perfectly competitive industry?

What contributes to the existence of multiproduct firms?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2.What price should you charge in the short run?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2.What will happen in the long run if there is no change in the demand curve?

A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22.The demand it faces is Q = 500 − 10P.What is the profit-maximizing price?

A monopoly has produced a product with a patent for the last few years.The patent is going to expire.What will happen after the patent expires?

Chris raises cows and produces cheese and milk because he enjoys:

The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7.Which of the following implications is (are) correct?

A firm has a total cost function of C(Q) = 50 + 10Q1/2.The firm experiences:

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Let the demand function for a product be Q = 100 − 2P.The inverse demand function of this demand function is:

In the long run,monopolistically competitive firms produce a level of output such that:

A perfectly competitive firm faces a:

A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22.The demand it faces is Q = 500 − 10P.What is the profit-maximizing level of output?

Which of the following is a correct representation of the profit maximization condition for a monopoly?

A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22.The demand it faces is Q = 500 − 10P.What is the condition for profit maximization?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2.What level of profits will you make in the short run?

You are a manager in a perfectly competitive market.The price is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What level of output should you produce in the short run?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What price should you charge in the short run?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What will happen in the long run if there is no change in the demand curve?

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing price?

A firm has a total cost function of C(Q) = 50 + 10Q^1/2.The firm experiences:

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the profit-maximizing level of output?

A monopoly has two production plants with cost functions C₁ = 50 + 0.1Q₁² and C₂ = 30 + 0.05Q₂².The demand it faces is Q = 500 − 10P.What is the condition for profit maximization?

You are a manager in a perfectly competitive market.The price in your market is $14.Your total cost curve is C(Q) = 10 + 4Q + 0.5Q².What level of profits will you make in the short run?