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microeconomics

Microeconomics 4th Edition David Besanko, Ronald Braeutigam - Solutions

11.23. A monopolist producing only one product has two plants with the following marginal cost functions:MC1 ! 20 " 2Q1 and MC2 ! 10 " 5Q2, where MC1 and MC2 are the marginal costs in plants 1 and 2, and Q1 and Q2 are the levels of output in each plant, respectively. If the firm is maximizing
11.22. Market demand is P ! 64 # (Q/7). A multiplant monopolist operates three plants, with marginal cost functions:
11.21. Imagine that Gillette has a monopoly in the market for razor blades in Mexico. The market demand curve for blades in Mexico is P ! 968 # 20Q, where P is the price of blades in cents and Q is annual demand for blades expressed in millions. Gillette has two plants in which it can produce
11.20. The following diagram shows the average cost curve and the marginal revenue curve for a monopolist in a particular industry. What range of quantities could it be possible to observe this firm producing, assuming that the firm maximizes profit? You can read your answers off the graph, and
11.19. The marginal cost of preparing a large latte in a specialty coffee house is $1. The firm’s market research reveals that the elasticity of demand for its large lattes is constant, with a value of about "1.3. If the firm wants to maximize profit from the sale of large lattes, about what
11.18. Suppose a monopolist has an inverse demand function given by P ! 100Q"1/2. What is the monopolist’s optimal markup of price above marginal cost?
11.17. Suppose a monopolist has the demand function Q ! 1,000P"3. What is the monopolist’s optimal markup of price above marginal cost?
11.16. Suppose a monopolist faces the market demand function P ! a " bQ. Its marginal cost is given by MC !c # eQ. Assume that a % c and 2b # e % 0.a) Derive an expression for the monopolist’s optimal quantity and price in terms ofa, b,c, and e.b) Show that an increase in c (which corresponds to
11.15. Two monopolists in different markets have identical, constant marginal cost functions.a) Suppose each faces a linear demand curve and the two curves are parallel. Which monopolist will have the higher markup (ratio of P to MC): the one whose demand curve is closer to the origin or the one
11.14. A monopolist faces the demand function P !100 " Q # I, where I is average consumer income in the monopolist’s market. Suppose we know that the monopolist’s marginal cost function is not downward sloping. If consumer income goes up, will the monopolist charge a higher price, a lower
11.13. A monopolist serves a market in which the demand is P ! 120 " 2Q. It has a fixed cost of 300. Its marginal cost is 10 for the first 15 units (MC ! 10 when 0 $ Q $ 15). If it wants to produce more than 15 units, it must pay overtime wages to its workers, and its marginal cost is then 20. What
11.12. A monopolist faces a demand curve P ! 210 " 4Q and initially faces a constant marginal cost MC ! 10.a) Calculate the profit-maximizing monopoly quantity and compute the monopolist’s total revenue at the optimal price.b) Suppose that the monopolist’s marginal cost increases to MC ! 20.
11.11. Assume that a monopolist sells a product with a total cost function TC ! 1,200 # 0.5Q2 and a corresponding marginal cost function MC ! Q. The market demand curve is given by the equation P ! 300 " Q.a) Find the profit-maximizing output and price for this monopolist. Is the monopolist
11.10. Assume that a monopolist sells a product with the cost function C ! F # 20Q, where C is total cost, F is a fixed cost, and Q is the level of output. The inverse demand function is P ! 60 " Q, where P is the price in the market. The firm will earn zero economic profit when it charges a price
11.9. Under what conditions will a profit-maximizing monopolist and a revenue-maximizing monopolist set the same price?
11.8. A monopolist operates with a fixed cost and a variable cost. Part of the fixed cost is sunk, and part nonsunk. How will the sunk and nonsunk fixed costs affect the firm’s decisions as it tries to maximize profit in the short run?
11.7. A monopolist operates with the following data on cost and demand. It has a total fixed cost of $1,400 and a total variable cost of Q2, where Q is the number of units of output it produces. The firm’s demand curve is P ! $120 " 2Q. The size of its sunk cost is $600. The firm expects the
11.6. Suppose that United Airlines has a monopoly on the route between Chicago and Omaha, Nebraska.During the winter (December–March), the monthly demand on this route is given by P ! a1 " bQ. During the summer ( June–August), the monthly demand is given by P ! a2 " bQ, where a2 # a1. Assuming
11.5. A monopolist operates in an industry where the demand curve is given by Q ! 1000 " 20P. The monopolist’s constant marginal cost is $8. What is the monopolist’s profit-maximizing price?
11.4. Suppose that Intel has a monopoly in the market for microprocessors in Brazil. During the year 2005, it faces a market demand curve given by P ! 9 " Q, where Q is millions of microprocessors sold per year. Suppose you know nothing about Intel’s costs of production.Assuming that Intel acts
11.3. Show that the price elasticity of demand is "1 if and only if the marginal revenue is zero.
11.2. The market demand curve for a monopolist is given by P ! 40 " 2Q.a) What is the marginal revenue function for the firm?b) What is the maximum possible revenue that the firm can earn?
11.1. Suppose that the market demand curve is given by Q ! 100 " 5P.a) What is the inverse market demand curve?b) What is the average revenue function for a monopolist in this market?c) What is the marginal revenue function that corresponds to this demand curve?
12. Why does the monopsony equilibrium give rise to a deadweight loss?
11. What is a monopsonist’s marginal expenditure function? Why does a monopsonist’s marginal expenditure exceed the input price at positive quantities of the input?
10. How does a monopsonist differ from a monopolist?Could a firm be both a monopsonist and a monopolist?
9. Why does the monopoly equilibrium give rise to a deadweight loss?
8. What rule does a multiplant monopolist use to allocate output among its plants? Would a multiplant perfect competitor use the same rule?
7. Evaluate the following statement: Toyota faces competition from many other firms in the world market for automobiles; therefore, Toyota cannot have market power.
6. What is the IEPR? How does it relate to the monopolist’s profit-maximizing condition, MR ! MC?
5. At the quantity of output at which the monopolist maximizes total profit, is the monopolist’s total revenue maximized? Explain.
4. Assume that the monopolist’s marginal cost is positive at all levels of output.a) True or false: When the monopolist operates on the inelastic region of the market demand curve, it can always increase profit by producing less output.b) True or false: When the monopolist operates on the elastic
3. Why can a monopolist’s marginal revenue be negative for some levels of output? Why is marginal revenue negative when market demand is price inelastic?
2. The marginal revenue for a perfectly competitive firm is equal to the market price. Why is the marginal revenue for a monopolist less than the market price for positive quantities of output?
1. Why is the demand curve facing a monopolist the market demand curve?
Explain how the choices of a monopolist or a monopsonist lead to economic inefficiency in a market.
Compare the market equilibrium in a competitive market with the profit-maximizing choices of a monopsonist.
Calculate a monopsonist’s profit-maximizing price and quantity given information about demand and cost.
Explain how a monopsonist chooses its inputs to maximize profit.
Determine how a monopolist with more than one plant allocates its production among those plants.
Compare the market equilibrium in a competitive market with the profit-maximizing choices of a monopolist.
Calculate a monopolist’s profit-maximizing price and quantity given information about demand and cost.
Explain how a monopolist chooses the level of its output (and thus, its price) to maximize profit.
10.30. Suppose that demand and supply curves in the market for corn are Qd " 20,000 ! 50P and Qs " 30P.Suppose that the government would like to see the price at $300 per unit and would like to do so with an acreage limitation program. How much would the government need to spend to achieve this?
10.29. Suppose that demand and supply curves in the market for corn are Qd " 20,000 ! 50P and Qs " 30P.Suppose that the government would like to see the price at $300 per unit and is prepared to artificially increase demand by initiating a government purchase program.How much would the government
10.28. Suppose that the domestic demand for television sets is described by Qd " 40,000 ! 180P and that the supply is given by Qs " 20P. Televisions can currently be freely imported at the world price of $160. Suppose the government bans the import of television sets. How much would domestic
10.27. Suppose that the domestic demand for television sets is described by Qd " 40,000 ! 180P and that the supply is given by Qs " 20P. If televisions can be freely imported at a price of $160, how many televisions would be produced in the domestic market? By how much would domestic producer
10.26. Suppose that the supply curve in a market is upward sloping and that the demand curve is totally inelastic.In a free market the price is $30 per ton. If an excise tax of $2 per ton is imposed in the market, what will be the resulting deadweight loss?
10.25. The domestic demand curve for portable radios is given by Qd " 5000 ! 100P, where Qd is the number of radios that would be purchased when the price is P. The domestic supply curve for radios is given by Qs " 150P, where Qs is the quantity of radios that would be produced domestically if the
10.24. Suppose that in the domestic market for computer chips the demand is Pd " 110 ! Qd, where Qd is the number of units of chips demanded domestically when the price is Pd. The domestic supply is Ps " 10 # Qs, where Qs is the number of units of chips supplied domestically when domestic suppliers
10.23. The market demand for sorghum is given by Qd " 500 ! 10Pd, while the market supply curve is given by Qs " 40Ps. The demand and supply curves are shown at right. The government would like to increase the income of farmers and is considering two alternative government interventions: an acreage
10.22. Consider a market with an upward-sloping supply curve and a downward-sloping demand curve. Under a government purchase program, which of the following statements are true, and which are false?(a) The increase in producer surplus will exceed the size of the government expenditure.(b) Consumer
What area represents smallest deadweight loss possible under the policy?
What area represents government receipts?
What area represents the smallest producer surplus possible under the policy?
What area represents the largest producer surplus possible under the policy?
What area represents consumer surplus?
What price per pack would producers receive?
What price per pack would consumers pay?
10.21. Figure 10.18 shows the supply and demand curves for cigarettes. The equilibrium price in the market is $2 per pack if the government does not intervene, and the quantity exchanged in the market is 1,000 million packs. Suppose the government has decided to discourage smoking and is
10.20. Consider a perfectly competitive market in which the market demand curve is given by Qd " 20 !2Pd and the market supply curve is given by Qs " 2Ps.a) Find the equilibrium price and quantity in the absence of government intervention.b) Suppose the government imposes a price ceiling of $3 per
10.19. In a perfectly competitive market, the market demand curve is Qd " 10 !Pd, and the market supply curve is Qs " 1.5Ps
10.18. In a perfectly competitive market, the market demand and market supply curves are given by Qd " 1,000 !10Pd and Qs " 30Ps. Suppose the government provides a subsidy of $20 per unit to all sellers in the market.a) Find the equilibrium quantity demanded and supplied;find the equilibrium market
10.17. Suppose the market for corn in Pulmonia is competitive. No imports and exports are possible. The demand curve is Qd " 10 ! Pd, where, Qd is the quantity demanded (in millions of bushels) when the price consumers pay is Pd. The supply curve is where Qs is the quantity supplied (in millions of
10.16. Which of these programs would surely lead to an increase in consumer surplus? Briefly explain.
10.15. Under which of these programs will the market clear? Briefly explain.
10.14. Which of these programs would lead to less than 10,000 units exchanged in the market? Briefly explain.
10.13. In a perfectly competitive market, the market demand curve is given by Qd " 200 ! 5Pd, and the market supply curve is given by Qd " 35Ps.a) Find the equilibrium market price and quantity demanded and supplied in the absence of price controls.b) Suppose a price ceiling of $2 per unit is
10.12. Refer to the accompanying diagram depicting a competitive market. If the government imposes a price ceiling of P1, using the areas in the graph below, identifya) The most that consumers can gain from such a move.b) The most that consumers can lose from such a move.In other words, provide a
10.11. Assume that a competitive market has an upward-sloping supply curve and a downward-sloping demand curve, both of which are linear. A tax of size $T is currently imposed in the market. Suppose the tax is doubled. By what multiple will the deadweight loss increase? (You may assume that at the
10.10. Suppose that the market for cigarettes in a particular town has the following supply and demand curves:QS " P; QD " 50 ! P, where the quantities are measured in thousands of units. Suppose that the town council needs to raise $300,000 in revenue and decides to do this by taxing the cigarette
10.9. The current equilibrium price in a competitive market is $100. The price elasticity of demand is !4 and the price elasticity of supply is #2. If an excise tax of $3 per unit is imposed, how much would you expect the equilibrium price paid by consumers to change? How much would you expect the
10.8. In a competitive market, there is currently no tax, and the equilibrium price is $60. The market has a downward-sloping demand curve. The government is about to impose an excise tax of $4 per unit. In the new equilibrium with the tax, what price will producers receive and consumers pay if the
10.7. In a competitive market, there is currently no tax, and the equilibrium price is $40. The market has an upward-sloping supply curve. The government is about to impose an excise tax of $5 per unit. In the new equilibrium with the tax, what price will producers receive and consumers pay if the
10.6. The table in Application 10.1 indicates that revenues from gasoline taxes will increase by about $14 billion(from $56 billion to about $69 billion per year) if the gasoline tax is raised from $0.40 to $0.50 per gallon. Using the supply and demand curves in Application 10.1, show that the
10.5. Consider the market for crude oil. Suppose the demand curve is described by Qd " 100 ! P, where Qd is the quantity buyers will purchase when the price they pay is P(measured in dollars per barrel). The equation representing the supply curve is QS " P/3, where QS is the quantity that producers
10.4. When gasoline prices reached a price of $2.00 per gallon, public policy makers considered cutting excise taxes by $0.10 per gallon to lower prices for the consumer.In discussing the effects of the proposed tax reduction, a news commentator stated that the effect of tax reduction should lead
10.3. Gadgets are produced and sold in a competitive market. When there is no tax, the equilibrium price is$20 per gadget. The own-price elasticity of demand for gadgets is !0.5. If an excise tax of $4 leads to an increase in the price of gadgets to $24, what must be true about the own-price
10.2. In Learning-By-Doing Exercise 10.1 we examined the effects of an excise tax of $6 per unit. Repeat that exercise for an excise tax of $3.
10.1. In a competitive market with no government intervention, the equilibrium price is $10 and the equilibrium quantity is 10,000 units. Explain whether the market will clear under each of the following forms of government intervention:a) The government imposes an excise tax of $1 per unit.b) The
14. With a price floor, will the most efficient producers necessarily be the ones supplying the market?
13. Why does the market not clear with a production quota?
12. Why does a market clear when the government gives producers a subsidy of $S per unit?
11. Why does a market clear when the government imposes an excise tax of $T per unit?
10. If an import tariff and an import quota lead to the same price in a competitive market, which one will lead to a larger domestic deadweight loss?
9. Why are agricultural price support programs, such as acreage limitation and government purchase programs, often very costly to implement?
8. Will a production quota in a competitive market always increase producer surplus?
7. Will a price ceiling always increase consumer surplus?Will a price floor always increase producer surplus?
6. The cheese-making industry in Castoria is competitive, with an upward-sloping supply curve and a downward-sloping demand curve. The government gives cheese producers a subsidy of $T for each kilogram of cheese they make. Will consumer surplus increase? Will producer surplus increase? Will there
5. Gizmos are produced and sold in a competitive market. When there is no tax, the equilibrium price is $100 per gizmo. The own-price elasticity of demand for gizmos is known to be about –0.9, and the own-price elasticity of supply is about 1.2. In commenting on a proposed excise tax of $10 per
4. In the competitive market for hard liquor, the demand is relatively inelastic and the supply is relatively elastic.Will the incidence of an excise tax of $T be greater for consumers or producers?
3. What is meant by the incidence of a tax? How is the incidence of an excise tax related to the elasticities of supply and demand in a market?
2. What is the size of the deadweight loss in a competitive market with no government intervention?
1. What is the significance of the “invisible hand’’ in a competitive market?
Employ economic analysis to understand the forces and issues underlying public policy discussions about government intervention in many kinds of competitive markets.
Show how intervention affects the distribution of income and the net benefits to consumers and producers, typically making some people better off while leaving others worse off.
Explain how government intervention creates deadweight losses in perfectly competitive markets as economic resources are reallocated.
Analyze the consequences of many forms of government intervention in perfectly competitive markets, including the impositions of excise taxes, subsidies to producers, price ceilings, price floors, production quotas, and import tariffs and quotas.
9.35. Consider an industry in which chief executive officers (CEOs) run firms. There are two types of CEOs:exceptional and average. There is a fixed supply of 100 exceptional CEOs and an unlimited supply of average CEOs. Any individual capable of being a CEO in this industry is willing to work for
9.33. A price-taking firm’s supply curve is s(P) ! 10P.What is the producer surplus for this firm if the market price is $20? By how much does producer surplus change when the market price increases from $20 to $21?9.34. The semiconductor market consists of 100 identical firms, each with a

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