Monopoly and Marginal Cost - 3383 Words

Practice Questions and Answers from Lesson III-3: Monopoly Practice Questions and Answers from Lesson III-3: Monopoly The following questions practice these skills: ïÆ' ¼ Explain the sources of market power. ïÆ' ¼ Apply the quantity and price affects on revenue of any movement along a demand curve. ïÆ' ¼ Find the profit maximizing quantity and price of a single-price monopolist. ïÆ' ¼ Compute deadweight loss from a single-price monopolist. ïÆ' ¼ Compute marginal revenue. ïÆ' ¼ Define the efficiency of P = MC. ïÆ' ¼ Find the profit-maximizing quantity and price of a perfect-price-discriminating monopolist. ïÆ' ¼ Find the profit-maximizing quantity and price of an imperfect-price-discriminating monopolist. Question: Each of the following firms possesses market power.†¦show more content†¦They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, the ir Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. Price of download Quantity of downloads demanded $10 0 $8 1 $6 3 $4 6 $2 10 $0 15 a. Calculate the total revenue and the marginal revenue per download. b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold? c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold? d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold? e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold? Answer to Question: a. The accompanying table calculates total revenue (TR) and marginal revenue (MR). Recall that marginal revenue is the additional revenue per unit of output Pric e of download Quantity of downloads TR MR demanded $10 0 $0 $8 1 $8 $8 $6 3 $18 $5 $4 6 $24 $2 $2 10 $20 $-1 $0 15 $0 $-4 b. Bob would charge $0. At that price, there would be 15 downloads, the largest quantity they can sell. c. Bill would charge $4.Show MoreRelatedManagerial Economics Chapter 9 Essay1641 Words   |  7 Pagesbecause The marginal revenue curve for a perfectly competitive firm is the same as its demand curve. Perfectly competitive firms should produce the quantity where The difference between total revenue and total cost is as large as possible. Profit for a perfectly competitive firm can be expressed as (P-ATC) x Q , where P is price, Q is output, and ATC is average total cost. A student argues: â€Å"To maximize profit, a firm should produce the quantity where the difference between marginal revenueRead MoreEconomics1291 Words   |  6 PagesProblem Set 9 (75 points) 1. A student argues, If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity the same and just increase his profit. Do you agree? Use a graph to illustrate your answer. The argument is incorrect. As the graph shows, a reduction in marginal cost will cause a monopolist to reduce his price. 2. Economist Harvey Leibenstein argued that the loss of economic efficiencyRead MoreStarbucks Vs. Google Market Structure Essay1639 Words   |  7 Pagescompetition, oligopoly, and monopoly. Every product ever produced comes from one of these four market structures. The one thing that all of these market structures have in common is the profit-maximizing rule. No matter what you product you make, every firm has a desire to produce where marginal revenue from selling the good is equal to the marginal cost of producing the good. Every firm should keep producing as long as the marginal revenue is greater than marginal cost. Once they reach a point whereRead MoreThumb Rule of Pricing722 Words   |  3 Pages10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice. To do this, we first write the expression for marginal revenue: Copyright  © 2009 Pearson Education, Inc. Publishing as Prentice Hall †¢ Microeconomics †¢ Pindyck/Rubinfeld, 7e. 9 of 50 10.1 MONOPOLY A Rule of Thumb for Pricing ChapterRead MoreEssay about Monopoly of Petroleum: OPEC1037 Words   |  5 PagesMonopoly of Petroleum: OPEC Images Not Included A monopoly is evident where a firm is the sole seller of its product and if its product does not have close substitutes, as discussed in (Gans J., King S. Mankiw A. 2003). This essay will discuss the monopoly of petroleum by The Organization Of Petroleum Exporting Countries (OPEC), particularly how it controls the price of petrol, threats to its monopoly and the social costs involved. OPEC was established in the 1960s and ever since, SaudiRead MoreMaximizing Profits in Market Structures Paper1129 Words   |  5 Pagesof firms that are competing in that market, along with factors such as: the ways in which these firms are alike or different, and the obstacles that exist in any new firms entering that market. In this report I will discuss Competitive Markets, Monopolies, and Oligopolies. I will point out what role each of the market structure play in the economy. This report will list the characteristics of each market structure. I will share how the price is determined in each market structure in terms of maximizingRead MoreMonopoly and Perfect Competition1045 Words   |  5 Pages ADP11/12/EX/MBA/0916 What is the difference between monopoly and perfect competition? Firm under perfect competition and the firm under monopoly are similar as the aim of both the seller is to maximize profit and to minimize loss. The equilibrium position followed by both the monopoly and perfect competition is MR = MC. Despite their similarities, these two forms of market organization differ from each other in respect of price-cost-output. There are many points of difference which are notedRead MoreMultiple Choice1387 Words   |  6 PagesChapter 15 Monopoly 1. Monopolies use their market leverage to a. charge prices that equal minimum average total cost. b. attain normal profits in the long run. c. restrict output and increase price. d. dump excess supplies of their product on the market. ANSWER: c restrict output and increase price. SECTION: 1 OBJECTIVE: 1 2. If government officials break a natural monopoly up into several smaller firms, then a. competition will force firms to attainRead MoreExam Guide Econs1039 Words   |  5 Pagestotal cost function C = 640 + 20Q. What is the profit-maximizing level of output? What are profits? Graph the marginal revenue, marginal cost, and demand curves, and show the area that represents deadweight loss on the graph. 3. In question 2, what would price and output be if the firm priced at socially efficient (competitive) levels? What is the magnitude of the deadweight loss caused by monopoly pricing? 4. Show that if a firm is a natural monopoly, a government policy that forces marginal costRead MoreThe Price of Diamonds Is Too High The price of diamonds has been controlled, up until recently, by1700 Words   |  7 Pagesdiamond industry. It both created and lost the most powerful monopoly in history. Through a discussion of how the cartels operate and the laws of demand and supply, one will be able to determine whether the price of diamonds is too high. History of De Beers Cecil Rhodes created De Beers, which became the owner of most of the diamond mines in South Africa. De Beers Consolidated Mines Ltd., was formed in 1888. This created a monopoly on all production and distribution of diamonds in South Africa