Suppose P = 20 - 8Q is the market demand function for a local monopoly. The marginal cost is 2Q. The firm currently uses a standard pricing strategy. Which of the following will allow the firm to enhance the profits? a. Engage in two-part pricing. c. Engage in randomized pricing. b. Engage in block pricing. Both a and b.
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- If a firm successfully adopts a product-differentiation strategy, the elasticity of demand for its products should a. increase. b. decrease. c. become marginal. d. be unaffected.Consider a monopoly market with demand curve Q(P) = . Suppose that producing a good costs $1 per unit and the firm must produce at least 1 unit by law. (1) What is the elasticity of demand? (2) How much would the monopolistic firm produce?Part 1: Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 -0.04Q, where Q is the quantity demanded (in millions of packs) and Pis the price per pack (in $). Also, you should draw in the marginal revenue curve. Refer to the scenario above. If the quantity sold is 50 million packs, then the firm's total revenue is total cost is A. B. C. D. A. B. с $400 million; $200 million D $250 million; $100 million Part 2 Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. If Tobac Co.…
- Problem 19 A publishing company has a monopoly in the sales of football cards. According to its estimates, the company's inverse demand function is p = 0.4-0.01q. The company's marginal cost is constant at £0.08. Suppose that the company wants to sell football cards in albums only. Using such a block pricing approach, what will be optimal price that the firm needs to set to maximize its profits? a) £5.12 b) £7.68 c) £2.56 d) £15.36 e) £3.84Exercises Exercise #1. Suppose a single-product monopoly facing a linear demand q = a – p with a > 0. The monopoly incurs a constant marginal cost 0 < c < a and has no fixed cost. A) Determine the profit maximizing price. B) Determine the profit maximizing quantity. C) Determine the monopoly's profit. D) Determine the inverse demand expressing p as a function of q. E) Determine the marginal revenue. F) Explain whether it matters if the monopoly sets price instead of quantity. G) Determine the consumer surplus. H) Determine the deadweight loss because of the exercise of market power (compared to the perfectly competitive equilibrium). I) Determine the price elasticity of demand at the monopoly's profit maximizing price. J) Determine the price elasticity of demand at the perfectly competitive price.Assume a firm engaging in selling its product and promotional activities in monopolisti ccompetition face short run demand and cost functions as Q = 20-0.5P and TC= 4Q2-8Q+15, respectively. Having this information a) Determine the optimal level of output and price in the short run. b) Calculate the economic profit (loss) the firm will obtain (incur). c) Show the economic profit (loss) of the firm in a graphic representation
- (a) Firms A and B are Cournot duopolists producing a homogeneous good. The inverse market demand is given by P= 100 Q, where P is the market price and Q is the total quantity demanded. Each firm has marginal cost equal to 40 and there are no fixed costs. Calculate the total industry output in this market. Derive also (i) the market price, the total profit of the two firms and the consumer surplus. (ii) monopoly. Calculate the total industry output after the merger. Derive also the market price, profit and consumer surplus after the merger. Explain intuitively any changes in these variables if the merger occurs. Suppose the two firms propose to merge to become aA firm is originally operating as a single-price monopolist that faces a market demand curve P(Q) = 198 –0 and total cost curve equal to TC (q) = 10, 500 + 32Q, with constant MC equal to MC(Q) = 32 for all units produced. Part (a): How much output does the firm produce and at what price is each unit sold for? Part (b): Calculate the firm's profit. The firm now realizes there are actually two distinct groups of consumers that purchase their product, with the following demand functions: P(q1) = 242 – qı P(q2) = 176 – 92 Their total and marginal cost curves have not changed. If the firm wanted to successfully practice third-degree price discrimination: Part (c): How many units of output would they sell to group 1 and how much will each consumer in group 1 pay? Part (d): How many units of output would they sell to group 2 and how much will each consumer in group 2 pay? Part (e): How much profit is earned by the firm when they practice third-degree price discrimination? Part (f): How much…Scenario: Suppose that the demand is given by: P = 100 - Q Marginal Revenue is MR = 100 - 2Q and Total Cost function is: TC(Q) = 200 Assume the firm is a price-maker (monopolist). What will be the optimal quantity (Q") under the two-part pricing? (Hint: plug the price into the demand equation)
- A monopolistically competitive firm is considering selling several units of the same product as a single package. A typical consumer's demand for the product is Q = 10 - 0.5P and the total cost function is C(Q) = 8Q. What is the optimal number of units to put into a package? What is the optimal price to charge for the package? What are the profits for this pricing scheme?A manager of a nightclub realizes that demand for drinks is more elastic among students and is trying to determine the optimal pricing schedule. Specifically, he estimates the following average demand for his customer types: Under 25: qr=18-5p Over 25: q=10-2p The two age groups visit the nightclub in equal numbers on average. Assume that drinks cost the club $2 to make. If the manager cannot identify to which group his customers belong, what is the uniform monopoly price? If the manager can identify to which group his customers belong, what price will he charge each group. Assume the manager can only charge a single price to each group. If the manager can charge a separate entry fee and a price per drink for each group, what two-part price will the manager set for reach group. Now suppose that once again it is impossible to identify which group the customers belong. Suppose the manager lowers the price of drinks to equal to marginal cost and still wanted to attract both…The graph below depicts the demand curve facing a monopolist. The monopoly has constant marginal costs of $5. On the graph: a) Use the straight-line tool to draw the marginal revenue curve. b) Use the straight-line tool to draw the marginal cost curve up to 60 units of output. c) Use the point tool to plot the profit maximization point on the demand curve. To refer to the graphing tutorial for this question type, please click here. Price 16 15 14 13 12 10 * I 7 5 3 2 Monopoly DI 2 3 2 Quantity See Hint