Question 1

Scenario 10.6:
John is the manufacturer of red rubber balls (Q). He has a red rubber ball manufacturing plant in California, Florida and Montana. The total cost of producing red rubber balls at each of the three plants is given by the following table:
California Florida Montana
Qc TCc Qf TCf Qm TCm
1 5 1 8 1 4
2 10 2 16 2 8
3 15 3 24 3 12
4 20 4 32 4 16
5 25 5 40 5 20
6 30 6 48 6 24
7 35 7 56 7 28
8 40 8 64 8 32
9 45 9 72 9 36
10 50 10 80 10 40
11 infinity 11 infinity 11 infinity
-Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, and John decides to produce 1 red rubber ball, at which plant will he produce it?

Accepted Answer

The cost of producing 1 red rubber ball is lowest at Montana, which is $4. Therefore, John will produce it in Montana.

Question 2

Scenario 10.5:
A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table:
California Ohio
Qc MCc Qo MCo Qc + o MR
1 2 1 3 1 24
2 3 2 4 2 20
3 5 3 6 3 16
4 9 4 8 4 12
5 16 5 12 5 8
6 24 6 17 6 4
-Refer to Scenario 10.5. From the perspective of the firm, what is the marginal cost of the 5th garden hose?

Accepted Answer

The answer of Scenario 10.5:
A firm produces garden hoses in...

Question 3

Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit?

Accepted Answer

To find the level of output that maximizes profit, we need to examine the impact of the tax on producers' costs and revenues. The tax of $2 per unit increases the cost of producing each red rubber ball by $2, meaning the marginal cost curve shifts upward by $2. This results in a new marginal cost curve (MC') that is parallel to the original marginal cost curve (MC), but is $2 higher at every level of output.

To determine the new profit-maximizing level of output, we need to compare the new marginal cost curve (MC') with the marginal revenue curve (MR). The marginal revenue curve is the same as the demand curve since red rubber ball producers face perfectly elastic demand, meaning they can sell as many balls as they want at the market price of $6.

At the profit-maximizing level of output, marginal revenue equals marginal cost, so we need to find the point at which MC' intersects MR. From the graph, we can see that this occurs at an output level of 5. At this level of output, the price of a red rubber ball is $6, the marginal cost is $8, and the producers earn a profit of $6 - $8 = -$2 per ball.

Therefore, the answer is D, as an output level of 5 maximizes profit despite being negative, as this is still the level at which producers earn the highest profit possible after the tax is imposed.

Question 4

Bancroft Pharmaceuticals has a patent on a new medication used to treat high blood pressure, so it is the monopoly seller of this new drug product. The marginal cost of producing one dose of the drug is $10, and the elasticity of demand for the product is -3. What is the profit maximizing monopoly price for this patented drug product?

Accepted Answer

To find the monopoly price, we need to use the formula: 
Marginal Revenue (MR) = Marginal Cost (MC)

We know that the marginal cost of producing one dose of the drug is $10. To find the marginal revenue, we need to use the following formula: 
MR = P(1 + (1/E))

Where P is the price and E is the elasticity of demand. Plugging in the given values, we get: 
MR = P(1 + (1/-3))
MR = P(2/3)
MR = (2/3)P

Setting MR equal to MC: 
(2/3)P = $10
P = $15

Therefore, the profit maximizing monopoly price for this patented drug product is $15.

Question 5

Scenario 10.6:
John is the manufacturer of red rubber balls (Q). He has a red rubber ball manufacturing plant in California, Florida and Montana. The total cost of producing red rubber balls at each of the three plants is given by the following table:
California Florida Montana
Qc TCc Qf TCf Qm TCm
1 5 1 8 1 4
2 10 2 16 2 8
3 15 3 24 3 12
4 20 4 32 4 16
5 25 5 40 5 20
6 30 6 48 6 24
7 35 7 56 7 28
8 40 8 64 8 32
9 45 9 72 9 36
10 50 10 80 10 40
11 infinity 11 infinity 11 infinity
-Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, what is the marginal cost of 5th red rubber ball?

Accepted Answer

The marginal cost is the additional cost of producing one more unit. For the 5th ball, the marginal cost is the difference in total cost between producing 5 and 4 balls. In Montana, the cost increases from 16 to 20, so the marginal cost is 4.

Question 6

Scenario 10.7:
The marginal revenue of green ink pads is given as follows:
MR = 2500 - 5Q
The marginal cost of green ink pads is 5Q.
-Refer to Scenario 10.7. Suppose that the firm chooses to produce 200 ink pads. At this level of output the demand for ink pads is

Accepted Answer

The marginal revenue is negative at Q = 200, so demand is elastic.

Question 7

After the imposition of a tax of $2 per unit of output, what is the profit maximizing price?

Accepted Answer

The answer of After the imposition of a tax of...

Question 8

What is the profit maximizing price?

Accepted Answer

The answer of What is the profit maximizing price?
...

Question 9

At the profit-maximizing level of output, demand is

Accepted Answer

The answer of At the profit-maximizing level of output, demand...

Question 10

Monopoly power results from the ability to

Accepted Answer

Monopoly power results from the ability to set price above marginal cost, establishing a price that is higher than the efficient level and producing less output than in a competitive market. This allows the monopolist to earn economic profit in the long run.

Question 11

The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows:
MR = 100 - 2Q
The profit maximizing price is

Accepted Answer

The answer of The marginal cost of a monopolist is...

Question 12

Scenario 10.5:
A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states and the marginal revenue from producing garden hoses are given in the following table:
California Ohio
Qc MCc Qo MCo Qc + o MR
1 2 1 3 1 24
2 3 2 4 2 20
3 5 3 6 3 16
4 9 4 8 4 12
5 16 5 12 5 8
6 24 6 17 6 4
-Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits?

Accepted Answer

To maximize profits, we want to produce where MR = MC.

For California: 
At Qc = 1, MR = $24 and MC = $2, so producing 1 hose in California results in a profit of (24-2) = $22. 
At Qc = 2, MR = $20 and MC = $3, so producing 2 hoses in California results in a profit of (20-3) = $17. 
At Qc = 3, MR = $16 and MC = $5, so producing 3 hoses in California results in a profit of (16-5) = $11. 
At Qc = 4, MR = $12 and MC = $9, so producing 4 hoses in California results in a profit of (12-9) = $3. 
At Qc = 5, MR = $8 and MC = $16, so producing 5 hoses in California results in a loss of (8-16) = -$8. 
At Qc = 6, MR = $4 and MC = $24, so producing 6 hoses in California results in a loss of (4-24) = -$20.

Therefore, the optimal quantity for California is 3, where MR = MC in California.

Question 13

Scenario 10.7:
The marginal revenue of green ink pads is given as follows:
MR = 2500 - 5Q
The marginal cost of green ink pads is 5Q.
-Refer to Scenario 10.7. How many ink pads will be produced to maximize profit?

Accepted Answer

The answer of Scenario 10.7:
The marginal revenue of green ink...

Question 14

A multiplant firm has equated marginal costs at each plant. By doing this

Accepted Answer

Equating marginal costs at each plant ensures that the firm is producing at the point where the marginal cost of producing an additional unit of output is the same across all plants. This means that the firm is minimizing costs given the level of output, which is the definition of cost efficiency. It does not necessarily maximize profits or revenues, as these depend on demand and pricing factors.

Question 15

What is the value of the Lerner index under perfect competition?

Accepted Answer

The Lerner index measures market power and is calculated as (P-MC)/P, where P is the price and MC is the marginal cost. Under perfect competition, there is no market power, meaning that P=MC, which results in a Lerner index of zero.

Question 16

Scenario 10.7:
The marginal revenue of green ink pads is given as follows:
MR = 2500 - 5Q
The marginal cost of green ink pads is 5Q.
-Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue?

Accepted Answer

The answer of Scenario 10.7:
The marginal revenue of green ink...

Question 17

A firm's demand curve is given by P = 500 - 2Q. The firm's current price is $300 and the firm sells 100 units of output per week.
a. Calculate the firm's marginal revenue at the current price and quantity using the expression for marginal revenue that utilizes the price elasticity of demand.
b. Assuming that the firm's marginal cost is zero, is the firm maximizing profit?

Accepted Answer

The answer of A firm's demand curve is given by...

Question 18

Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cholesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product?

Accepted Answer

A monopolist maximizes profit by setting marginal revenue equal to marginal cost. The markup over marginal cost that the firm will charge depends on the elasticity of demand. In this case, the elasticity of demand is -4, which means that a 1% increase in price will result in a 4% decrease in quantity demanded. To maximize profit, the firm should set the price at a markup over marginal cost, which is the inverse of the absolute value of the elasticity of demand. In this case, the markup would be 1/|-4| = 0.25, or 25%. Therefore, the price-cost markup is 25% of the price.

Question 19

The demand curve and marginal revenue curve for red rubber balls are given as follows:
Q = 16 - P MR = 16 - 2Q
What level of output maximizes profit?

Accepted Answer

To find the level of output that maximizes profit, we need to determine the output level where marginal revenue (MR) equals marginal cost (MC). Since MC is not given, we cannot determine the specific output level, but we can analyze the information given to determine which answer option(s) could potentially maximize profit.

At any output level, the corresponding marginal revenue is 16 - 2Q. This means that as output increases, the marginal revenue curve decreases. The demand curve is given as Q = 16 - P, which can be rewritten as P = 16 - Q. This shows that as output increases, the price decreases.

To determine potential profit-maximizing output levels, we can compare the marginal revenue and marginal cost curves. If the marginal revenue is greater than the marginal cost, producing an additional unit will increase profit. If the marginal cost is greater than marginal revenue, producing an additional unit will decrease profit.

Since we don't have a specific MC curve, we'll assume that it is upward sloping, intersecting with MR at some point.

At an output level of 0, both MR and MC are 16. Thus, producing 0 units would lead to zero profit. 
At an output level of 4, MR = 8 and MC could be between 10 and 12 (assuming an upward sloping MC curve depending on the optimal level of output). This means that producing an additional unit would decrease profit. 
At an output level of 5.5, MR = 5 and MC could be between 8 and 10, possibly resulting in a level of profit maximization. 
At an output level of 6, MR = 4 and MC could be between 6 and 8. This means that producing an additional unit would decrease profit.

Therefore, the best choice(s) are D because it has the potential to maximize profit.

Question 20

The ________ elastic a firm's demand curve, the greater its ________.

Accepted Answer

A less elastic demand curve indicates that consumers are less sensitive to price changes, which typically gives a firm more monopoly power because it can raise prices without losing many customers.

Quiz 10: Market Power: Monopoly and Monopsony

Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit?

Scenario 10.7: The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. -Refer to Scenario 10.7. Suppose that the firm chooses to produce 200 ink pads. At this level of output the demand for ink pads is

After the imposition of a tax of $2 per unit of output, what is the profit maximizing price?

What is the profit maximizing price?

At the profit-maximizing level of output, demand is

Monopoly power results from the ability to

The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows: MR = 100 - 2Q The profit maximizing price is

Scenario 10.7: The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. -Refer to Scenario 10.7. How many ink pads will be produced to maximize profit?

A multiplant firm has equated marginal costs at each plant. By doing this

What is the value of the Lerner index under perfect competition?

Scenario 10.7: The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. -Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue?

Suppose your firm develops a new pharmaceutical product that may be used to reduce blood cholesterol levels, so the firm is the monopoly seller of this drug. If the elasticity of demand for this new product is -4, what markup should your firm use to set the profit-maximizing price for the product?

The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q What level of output maximizes profit?

The elastic a firm's demand curve, the greater its .