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Microeconomics Theory And Applications With Calculus 5th Global Edition Jeffrey Perloff - Solutions
1.8.3 Some people propose reducing the patent length for drugs, but their critics argue that such a change would result in even higher prices during the patent period, as companies would need to recover drug development costs more quickly. Is this argument valid if drug companies maximize profit?
1. 8.2 Does the Challenge Solution change if the entry of the generic causes a parallel shift to the left of the patent monopoly’s linear demand curve?
1. 8.1 Under what circumstances will a drug company charge more for its drug after its patent expires?
1. *7. 6 For general functions, solve for the monopsony’s first-order condition if it is also a monopoly in the product market. M 8. Challenge
1. 7. 5 Assume a monopsony uses only one factor, labor, L, to produce a final good, Q, which it sells in a com petitive market at the price, p = 1. The inverse supply curve for labor is w = 20 + 2L. If the monopsony’s labor demand curve is w = 70 − L, how many units of labor does it hire and at
1. 7. 4 What effect does a price support have on a monop sony? In particular, describe the monopsony opti mum if the price support is set at the price where the supply curve intersects the demand curve.
1. 7. 3 Can a monopsony exercise monopsony power—that is, profitably set its price below the competitive level—if the supply curve it faces is horizontal? Why or why not?
1. 7. 2 What happens to the monopsony outcome if the minimum wage is set slightly above or below the competitive wage? (Hint: See Solved Problem 11.9.)
1.7. 1 Suppose that the original labor supply curve, S1, for a monopsony shifts to the right to S2 if the firm spends $1,000 in advertising. Under what condition should the monopsony engage in this advertising?(Hint: See the analysis of monopoly advertising.)
1. 6.2 A monopoly chocolate manufacturer faces two types of consumers. The larger group, the hoi polloi, loves desserts and has a relatively flat, linear demand curve for chocolate. The smaller group, the snobs, is interested in buying chocolate only if the hoi pol loi do not buy it. Given that the
1. *6.1 A monopoly produces a good with a network externality at a constant marginal and average cost of $2. In the first period, its inverse demand curve is p = 10- Q. In the second period, its demand is p = 10- Q unless it sells at least Q = 8 units in the first period. If it meets or exceeds
1. 5.6 Malaysia’s monopoly auto manufacturer produces the Proton, which the government protects from imports by a specific tariff, t, on imported goods.The monopoly’s profit-maximizing price is p*. The world price of the good (comparable autos) is pw, which is less than p*. Because the price of
1. 5.5 Bleyer Industries Inc., the only U.S. manufacturer of plastic Easter eggs, manufactured 250 million eggs each year. However, imports from China cut into its business. In 2005, Bleyer filed for bankruptcy because the Chinese firms could produce the eggs at much lower costs. Use graphs to show
1. 5.4 A monopoly drug company produces a lifesav ing medicine at a constant cost of $10 per dose.The demand for this medicine is perfectly inelastic at prices less than or equal to the $100 (per day)income of the 100 patients who need to take this drug daily. At a higher price, consumers buy noth
1. 5.3 In the Application “The Botox Patent Monopoly,”what would happen to the price and quantity if the government had set a price ceiling of $200 per vial of Botox? What welfare effects would such a price ceiling have? (Hint: See Solved Problem 11.7.) M
1. 5.2 Describe the effects on output and welfare if the government regulates a monopoly so that it may not charge a price above p, which lies between the unregulated monopoly price and the optimally reg ulated price (determined by the intersection of the firm’s marginal cost and the market
1. 5.1 Before it joined the Eurozone, Greece used to be one of the most affordable tourist destinations in the old con tinent. Since then prices significantly increased. How ever, Greek government sets maximum prices for basic necessities in places where people have few choices of vendors. Those
1. 4.5 Once the copyright runs out on a book or musical composition, the work can legally be posted on the internet for anyone to download. U.S. copyright law protects the monopoly for 95 years after the original publication. But in Australia and Europe, the copy right holds for only 50 years.
1. 4.4 In the Application “The Botox Patent Monopoly,”consumer surplus, area A, equals the deadweight loss, area C. Show that this equality is a result of the linear demand and constant marginal cost assumptions. M
1. 4.3 In the Application “The Botox Patent Monopoly,”what would happen to the monopoly-optimal price and quantity if the government had collected a spe cific tax of $75 per vial of Botox? What welfare effects would such a tax have? M
1. 4.2 Can a firm operating in the upward-sloping portion of its average cost curve be a natural monopoly?Explain. (Hint: See Solved Problem 11.6.)
1. *4.1 Can a firm be a natural monopoly if it has a U-shaped average cost curve? Why or why not?(Hint: See Solved Problem 11.6.)434 CHAPTER 11 Monopoly and Monopsony
1. 3.7 In a figure, show the effect of an ad valorem tax (see Chapter 2) on a monopoly optimum, consumer sur plus, producer surplus, welfare, and deadweight loss.4. Causes of Monopolies
1. 3.6 What is the effect of a franchise (lump-sum) tax on a monopoly? (Hint: Consider the possibility that the firm may shut down.)
1. 3.5 If the inverse demand curve is p = 120- Q and the marginal cost is constant at 10, how does charg ing the monopoly a specific tax of t = 10 per unit affect the monopoly optimum and the welfare of consumers, the monopoly, and society (where society’s welfare includes the tax revenue)? What
1. *3.4 Only Indian tribes can run casinos in California.These casinos are spread around the state so that each is a monopoly in its local community. In 2004, California Governor Arnold Schwarzenegger nego tiated with the state’s tribes, getting them to agree to transfer a fraction of their
1. 3.3 Consider the inverse demand curve p = 144 − 2Q and the cost function C(Q) = 100 + 4Q. If the mar ket were competitive, calculate the incidence of a specific tax, t = 6, that falls on consumers. Calcu late the incidence of the same tax if the market were instead a monopoly. M
1. 3.2 A monopoly with a constant marginal cost m has a profit-maximizing price of p1. It faces a constant elasticity demand curve with elasticity ε. After the government applies a specific tax of $1, its price is p2. What is the price change p2- p1 in terms of ε?How much does the price rise if
1. 3.1 If the inverse demand function facing a monopoly is p(Q) and its cost function is C(Q), show the effect of a specific tax, t, on the monopoly’s profit maximizing output. How does imposing t affect its profit? M
1. 2.7 Suppose that many similar price-taking consumers(such as Denise in Chapter 10) have a single good(candy bars). Jane has a monopoly in wood, so she can set prices. Assume that no production is pos sible. Using an Edgeworth box, illustrate the monop oly optimum and show that it does not lie on
1.2.6 Draw an example of a monopoly with a linear demand curve and a constant marginal cost curve.a. Show the profit-maximizing price and output, p*and Q*, and identify the areas of consumer sur plus, producer surplus, and deadweight loss. Also show the quantity, Qc, that would be produced if the
1. 2.5 In 2015, Apple introduced the Apple Watch.According to HIS, the cost of producing the 38mm Apple Watch Sport was $84. The price was $349.What was Apple’s price/marginal cost ratio? What was its Lerner Index? If Apple is a short-run profit maximizing monopoly, what elasticity of demand did
1. *2.4 When the iPod was introduced, Apple’s constant marginal cost of producing its top-of-the-line iPod was $200 (iSuppli), its fixed cost was approximately$736 million, and I estimate that its inverse demand function was p = 600- 25Q, where Q is units measured in millions. What was Apple’s
1. 2.3 Pepsi can be bought almost anywhere—from a small local shop or a big supermarket, a restaurant or a pub, a big city or a small town. You can also buy it on a Wizz Air flight. Wizz Air Europe’s ultra low-cost airline, is headquartered in Budapest and owns the largest fleet of aircraft in
1. *2.2 Gilead Sciences’ drug Sovaldi is an effective treat ment for hepatitis C. The price for a 12-week regi men of Sovaldi is $84,000, which is more than 617 times the estimated marginal cost of $136.27 What is the firm’s Lerner Index? What elasticity of demand did the firm face if it was
1. 2.1 Under what conditions might a monopolist charge a price less than the profit-maximizing price? (Hint:consider the issue raised in the Application “Cable Cars and Profit Maximization.”)
1. 1. 15 In 2018, Burberry, Britain’s largest luxury label by sales, made headlines after admitting to burning£28.6 million worth of clothing and cosmetics. The practice, however, is not uncommon in the industry.Other brands, like Richemont, Louis Vuitton, and H&M, have all been accused of
1. 1. 14 Show that after a shift in the demand curve, a monopoly’s price may remain constant but its output may rise.
1. 1. 13 Can a Premier League football club in the United Kingdom where it is operating on its demand curve indicate if it is profit-maximizing monopoly or rather seeking to maximize revenue or attendance?What would the elasticity be if the football club was maximizing revenue?
1. 1. 12 Show why a monopoly may operate in the upward-or downward-sloping section of its long-run average cost curve but a competitive firm operates only in the upward-sloping section.
1. 1. 11 Walkman, the analogue predecessor to the iPod, was invented by the consumer electronics company Sony and first produced in 1979. This metal-cased blue-and-silver portable cassette player allowed peo ple to listen to music while on the move. Initially priced at $150, it was bought by more
1. 1. 10 Given that a monopoly’s marginal revenue curve is strictly downward sloping, use math and a graph(such as Figure 11.3) to show why a monopoly’s rev enue curve reaches its maximum at a larger quantity than does its profit curve. M
1. 1. 9 If a monopoly’s inverse demand curve is p = 13- Q and its cost function is C = 25 + Q + 0.5Q2, what Q* maximizes the monopoly’s profit (or minimizes its loss)? At Q*, what is the price and the profit?Should the monopoly operate or shut down? (Hint:See Solved Problem 11.2.) M
1. 1. 8 If a monopoly’s inverse demand curve is p(Q) = 18 −2Q and its cost function is C(Q) = 10 + 3Q + 0.5Q2, what Q* maximizes the monopoly’s profit (or mini mizes its loss)? At Q*, what is the price and the profit? Should the monopoly operate or shut down?(Hint: See Solved Problem 11.2.)
1.1. 7 The inverse demand curve that a monopoly faces is p = 10Q-0.5. The firm’s cost curve is C(Q) = 5Q.What is the profit-maximizing quantity and price?(Hint: See Solved Problem 11.2.)
1.1. 6 The inverse demand curve that a monopoly faces is p = 100- Q. The firm’s cost curve is C(Q) = 10 + 5Q. What is the firm’s profit-maximizing quantity and price? How does your answer change if C(Q) = 100 + 5Q? (Hint: See Solved Problem 11.2.)
1. *1. 5 Show that the elasticity of demand is unitary at the midpoint of a linear inverse demand function and hence that a monopoly will not operate to the right of this midpoint.
1. 1. 4 Given that the inverse demand function is p(Q) =a- bQ + (c/2)Q2, derive the marginal revenue function. Compare the corresponding marginal revenue curve to the linear one (where c = 0) and show how its curvature depends on whether c is positive or negative. (Hint: See Solved Problem 11.1.)
1. 1. 3 If the inverse demand curve a monopoly faces is p = 10Q-0.5, what is the firm’s marginal revenue curve? (Hint: See Solved Problem 11.1.) M
1. 1. 2 If the inverse demand function is p = 300- 3Q, what is the marginal revenue function? Draw the demand and marginal revenue curves. At what quantities do the demand and marginal revenue lines hit the quantity axis? (Hint: See Solved Problem 11.1.)
1.1. 1 Redraw Figure 11.1 for a competitive firm, which faces a horizontal demand curve. Use the same type of reasoning that we used in Figure 11.1 to explain why the competitive firm’s MR curve is the same as its demand curve.
1. 6.5 A competitive industry with an upward-sloping sup ply curve sells Qh of its product in its home country and Qf in a foreign country, so the total quantity it sells is Q = Qh + Qf . No one else produces this product. The shipping cost is zero. Determine the equilibrium price and quantity in
1. 6.4 Initially, electricity sells in New York and in other states at a competitive single price. Now suppose that New York restricts the quantity of electricity that its citizens can buy. Show what happens to the price of electricity and the quantities sold in New York and elsewhere.
1. 6.3 A central city imposes a rent control law that places a binding ceiling on the rent that a landlord may charge for an apartment. The suburbs of this city do not have rent control. What happens to the rental prices in the suburbs and to the equilibrium number of apartments in the total
1. 6.2 The market for oranges is competitive. The market has two types of demanders: consumers who eat fresh oranges and orange juice producers for whom oranges are an intermediate input. If the government were to place a binding price ceiling only on oranges sold directly to consumers, what would
1. 6.1 Some countries, such as South Korea and Taiwan, responded to shortages in personal safety equipment caused by the pandemic by rationing face masks in addition to imposing price ceilings and export bans.Modify the Challenge Solution to depict how ration ing affects the welfare of the citizens
1. 5.3 Suppose that society cared only about the welfare of consumers so that it wanted to maximize consumer surplus. The government cannot force firms to pro duce more than the competitive level. Does competi tion maximize consumer surplus? Why? If not, what kind of policy would maximize consumer
1. 5.2 Suppose that society uses the “opposite” of a Rawlsian welfare function: It maximizes the well-being of the best-off member of society. Write this welfare function.What allocation maximizes welfare in this society?
1. 5.1 Give an example of a social welfare function that leads to the egalitarian allocation in which everyone receives exactly the same bundle of goods.
1.4.3 Suppose that Britain can produce 10 units of cloth or 5 units of food per day (or any linear combina tion) with available resources and that Greece can produce 2 units of food per day or 1 unit of cloth (or any combination). Britain has an absolute advantage over Greece in producing both
1.4.2 Luna and Klara, best friends and flat mates, moved to Barcelona to study economics. They can spend their non-leisure time either doing the coursework or cleaning the house. Both are equally intelligent, but it takes Klara half as much time as it does Luna to clean the house. Discuss how
1.4.6 Two countries, each produce two goods. Country 1 has 200 workers and Country 2 has 600 workers.If they do not trade, Country 1 produces 5 units of good 1 and 1 unit of good 2, and Country 2 pro duces 10 units of good 1 and 10 units of good 2.The following table shows how many workers are
1. 4.5 Modify Solved Problem 10.5 to show that the PPF more closely approximates a quarter of a circle with six people. One of these new people, Bill, can produce five piles of wood, or four candy bars, or any linear combination. The other, Helen, can produce four piles of wood, or five candy bars,
1. 4.4 If Jane and Denise have identical, linear production possibility frontiers (see the Jane and Denise exam ple in the text), can they gain from trade? Explain.(Hint: See Solved Problem 10.5.)
1. *4.1 In panel c of Figure 10.5, the joint production pos sibility frontier is concave to the origin. When the two individual production possibility frontiers are combined, however, the resulting PPF could have been drawn so that it was convex to the origin. How do we know which of these two ways
1. 3.1 In an Edgeworth box, illustrate that a Pareto-efficient equilibrium, pointa, can be obtained by competition, given an appropriate endowment. Do so by identifying an initial endowment point, b, located somewhere other than at pointa, such that the competitive equilibrium (resulting from
1. 2.8 Continuing with Exercise 2.7, determine p, the com petitive price of G, where the price of H is normalized to equal one. (Hint: See Solved Problem 10.4.) M 3. Competitive Exchange
1.2.7 In a pure exchange economy with two goods, G and H, the two traders have Cobb-Douglas util ity functions. Suppose that Tony’s utility function is Ut = GtHt and Margaret’s utility function is Um = Gm(Hm)2. Between them, they own 100 units of G and 50 units of H. Solve for their contract
1. 2.6 Continuing with Exercise 2.5, what are the com petitive equilibrium prices, where one price is nor malized to equal one? (Hint: See Solved Problem 10.4.) M
1. 2.5 Arslan and Belgin consume two goods, q1 and q2.Arslan’s utility function is UA= (qA 1)1.2, (qA 2)1.2 and Belgin’s is UB= (qB 1)0.8, (qB 2)0.8. Their endow ments are qA 1= 10, qA 2= 20, qB 1= 20, and qB 2= 10.a. What are the marginal rates of substitution for each person? Is the endowment
1. 2.4 Two people trade two goods that they cannot pro duce. Suppose that one consumer’s indifference curves are bowed away from the origin—the usual type of curves—but the other’s are concave to the origin. In an Edgeworth box, show that a point of tangency between the two consumers’
1. 2.3 The two people in a pure exchange economy have identical utility functions. Will they ever want to trade? Why or why not?
1. 2.2 Explain why point e in Figure 10.3 is not on the contract curve. (Hint: See Solved Problem 10.2.)
1. 2.1 Suppose Vijay has 10 onion rings and 5 sheek kababs, and his friend Tara has 5 onion rings and 10 sheek kababs. Both can benefit from trade, and after trading Vijay has 12 onion rings and 3 sheek kababs.In an Edgeworth box, label the initial allocation A and the new allocation B. Draw
1. 1. 8 Competitive firms in Africa sell their output only in Europe and the United States (which do not produce the good themselves). The industry’s supply curve is upward sloping. Europe puts a tariff of t per unit on the good, but the United States does not. What is the effect of the tariff on
1. 1. 7 Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and employ ment in the covered and uncovered sectors?
1. 1. 6 Some cities and municipalities in Croatia levy a local surtax on their residents’ earnings. The rate of surtax varies with the size of the city; larger cit ies can charge higher rates. Zagreb’s current city tax rate is 18%. Compared to the situation in which neither Zagreb nor the areas
1. 1. 5 Neighboring countries often differ in the level of the basic income exempted from taxation. Sometimes national regulations and international agreements allow cross-border commuters to exploit these dif ferences. Show the effect these have on the equilib rium wage and employment in cities on
1. 1. 4 The demand curve in Sector 1 of the labor mar ket is L1 =a- bw. The demand curve in Sector 2 is L2 =c- dw. The supply curve of labor for the entire market is L = e + fw. In equilibrium, L1 + L2 = L.a. Solve for the equilibrium with no minimum wage.b. Solve for the equilibrium at which the
1. 1. 3 The market demand for medical checkups per day is QF = 25(198 + nC/20,000- pF), where nC is the number of patients per day who are at least 40 years old, and pF is the price of a checkup. The market demand for the number of dental check ups per day, QT, is QT = 100(150- pT)/3, where pT
1. 1. 2 The demand functions for each of two goods depend on the prices of the goods, p1 and p2: Q1 = 15- 3p1 + p2 and Q2 = 6- 2p2 + p1.However, each supply curve depends only on its own price: Q1 = 2 + p1 and Q2 = 1 + p2. Solve for the equilibrium: p1, p2, Q1, and Q2. M 386 CHAPTER 10 General
1.. 1 The demand functions for the only two goods in the economy are Q1= 9 - 3p1+ p2 and Q2= 3 - 2p2/3 +p1, and Q1= 3Q2= 6, solve for the equilibrium values of p1, p2, and Q2. M
1. 7. 2 As the Challenge explains, in the city of Bengaluru, India, for many years, there have not been any new liquor licenses issued to retail shops, bars, or restau rants, but current owners can resell their licenses. If there was no license freeze so that reselling is impos sible, and the
1.7. 1 Effective from July 2016, Barcelona, Spain, will reduce the number of billboards it allows on its city streets by 20% in order to make the city more attrac tive and less aesthetically cluttered (i.e., to eliminate a negative externality). What effect will this policy have on the owners of
1. 6.12 A government is considering a quota and a tariff, both of which will reduce imports by the same amount. Why might the government prefer one of these policies to the other?7. Challenge
1. 6.11 During the Napoleonic Wars, Britain blockaded North America, seizing U.S. vessels and cargo and impressing sailors. At President Thomas Jefferson’s request, Congress imposed a nearly complete—perhaps 80%—embargo on international commerce from December 1807 to March 1809. Just before
1. 6.10 The European Union (EU) levies both a tariff (12.8% ad valorem plus a specific tariff that varies by country) and a quota (about 228 thousand tons) on imports of lamb from New Zealand, both of which increase the EU price of lamb above the world price. Draw a diagram showing the welfare
1. 6.9 After Mexico signed the North American Free Trade Agreement (NAFTA) with the United States in 1994, corn imports from the United States doubled within a year, and today U.S. imports make up nearly one-third of the corn consumed in Mexico. According to Oxfam(2003), the price of Mexican corn
1. 6.8 Given that the world supply curve is horizontal at the world price for a given good, can a subsidy on imports raise welfare in the importing country?Explain your answer.
1. 6.7 Show that if the importing country faces an upward sloping foreign supply curve (excess supply curve), a tariff may raise welfare in the importing country.
1. 6.6 In 2013, the U.S. government claimed that China and Vietnam were dumping shrimp in the United States at a price below cost, and proposed duties as high as 112%.Suppose that China and Vietnam were subsidizing their shrimp fisheries. In a diagram, show who gains and who loses in the United
1. *6.5 Based on the estimates of the U.S. daily oil demand function in Equation 9.3 and supply function in Equation 9.4, use calculus to determine the change in deadweight loss from a marginal increase in a tar iff, evaluated where the tariff is initially zero. (Hint:You are being asked to
1. 6.4 In Solved Problem 9.5, if the domestic demand curve is Q = 20p-0.5, the domestic supply curve is Q = 5p0.5, and the world price is 5, use calculus to determine the changes in producer surplus, consumer surplus, and welfare from eliminating free trade. M
1. 6.3 Canada has 20% of the world’s known freshwa ter resources, yet many Canadians believe that the country has little or none to spare. Over the years, U.S. and Canadian firms have struck deals to export bulk shipments of water to drought-afflicted U.S.cities and towns. Provincial leaders have
1. 6.2 Free trade is the unrestricted purchase and sale of goods and services between countries, as exemplified in the European Economic Area, the North Ameri can Free Trade Agreement, and bilateral agreements between various countries. Suppose that the compet itive equilibrium price for a good
1. 6.1 Since 1960, the manufacture, sale, consumption, and storage of alcohol has been illegal in the state of Gujarat, India. Similar bans are in place in some other Indian states as well. Assuming a ban on alco hol is partially effective, draw a diagram to show how it would affect the price of
1. 5.17 Draw and label a figure (including the dollar amount of the deadweight loss area) to illustrate the effects of a price control in the natural gas market as described in the Application “The Social Cost of a Natural Gas Price Ceiling.”6. Comparing Both Types of Policies: Trade
1. 5.16 Draw and label a figure to illustrate the effects of the price ceiling imposed on sorghum in Question 5.11.Highlight the area of deadweight loss (DWL) and include its value.
1.5.15 What are the welfare effects of a binding minimum wage? Use a graphical approach to show what hap pens if all workers are identical. Then describe in writing what is likely to happen to workers who dif fer by experience, education, age, gender, and race.
1. 5.14 What were the welfare effects (who gained, who lost, what was the deadweight loss) of the gasoline price ceiling described in Chapter 2? Add the rel evant areas to a drawing like Figure 2.14. (Hint: See Solved Problem 9.4.)
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