Which of the following statements is true? 1. When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. II. When a monopolist sells an additional unit of output, its revenue increases by an amount less than the price. III. Average revenue is the same as price for both the competitive firm and the monopolist.
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- Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?2. A monopoly sells its good in Country A, where the elasticity of demand (in absolute value) is 2, and in Country B, where the elasticity of demand (in absolute value) is 3. Its marginal cost is $20. Determine what price does the monopoly sells its good in each country if the monopolist is able to price discriminate. How and why does the price depend on the elasticity of demand?11. A monopolist is faced with the following cost and revenue curves: (a) What is the maximum-profit output? 80 MC (b) What is the maximum-profit price? 70 (c) What is the total revenue at this price and output? 60 50 AÇ (d) What is the total cost at this price and output? 40 30 (e) What is the level of profit at this price and output? 20 AR () If the monopolist were ordered to produce 300 units, what would be the market price? 10 100 200 300 403 500 600 (2) How much profit would now be made? -10 MR (h) If the monopolist were faced with the same demand, but average costs were constant at £60 per unit, what output would maximise profit? -20 Quantity What would be the price now?. How much profit would now be made?. (k) Assume now that the monopolist decides not to maximise profits, but instead sets a price of £40. How much will now be sold? O What is the marginal revenue at this output? (m) What does the answer to (1) indicate about total revenue at a price of £40? (n) What is the price…
- (Table) Suppose a monopolist faces the demand relationship shown in the table. If the marginal cost is $6, then the profit-maximizing output is (hint: Find marginal revenue) Quantity Demanded Price $10 $8 $7 $5 $3 $2 3\ 4. 5. 6. OA 4 units. O B. 3 units. OC.1 unit. OD.2 units.8. Natural monopoly analysis The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per hundred cubic feet) 20 18 16 14 0 0 1 2 3 5 6 7 8 QUANTITY (Hundreds of cubic feet) MR 4 ATC MC 9 10 D Monopoly Outcome (? Which of the following statements are true about this natural monopoly? Check all that apply. In order for a monopoly to exist in this case, the government must have intervened and created it.A monopolist is faced with the following cost and revenue curves:(picture) a.What is the maximum-profit price and output,total revenue, total cost and profit? b.If the monopolist were ordered to produce 300 units, what would be the market price and how much profit would now be made c.If the monopolist were faced with the same demand, but average costs were constant at £60 per unit, what output would maximise profit? What would be the price now?................................................................................................. (j) How much profit would now be made? ................................................................................... (k) Assume now that the monopolist decides not to maximise profits, but instead sets a price of £40. How much will now be sold? .................................................................................................................................................. (l) What is the marginal revenue at this…
- 4. A monopolist is faced with the following cost and revenue curves: $ 80 70 60 50 40 30 20 10 0 -10 0 -20 100 200 300 400 FMC 500 AC AR 600 MR Quantity (a) What is the maximum-profit output?. (b) What is the maximum-profit price? (c) What is the total revenue at this price and output? (d) What is the total cost at this price and output? (e) What is the level of profit at this price and output? (f) If the monopolist were ordered to produce 300 units, what would be the market price? (g) How much profit would now be made? (h) If the monopolist were faced with the same demand, but average costs were constant $60 per unit, what output would maximise profit? (i) What would be the price now? (j) How much profit would now be made? (k) Assume now that the monopolist decides not to maximise profits, but instead sets a price of $40. How much will now be sold?.Which of the following statements are true about this natural monopoly? Check all that apply. O The cable company is experiencing diseconomies of scale. The cable company must own a scarce resource. ✔The cable company is experiencing economies of scale. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. True or False: Without government regulation, natural monopolies can earn positive profit in the long run. True FalseQuestion 4.3 (a) A monopolist faces the demand curve: Q = 1000 – 20P. What is the exact value of the price elasticity of demand when the price $20 and $30 respectively (hint: refer to each of the stated price level only)? At the two stated price level, how should the monopolists change the output level to maximize profit?
- 19. Firm A is monopolist in x market, and it consumes one unit of y in order to produce one unit of x. It costs 5 + py TL to produce one unit of x. (py is the price of product y.) y is produced by a monopolist, B, and it costs 5 TL to produce one unitf of y. The demand for x is defined by px = 50-qx (px product price, qx quantity demanded). a) Assume that px is set by Firm A and py is set by Firm B. What would be the equilibrium prices for products x and y? Calculate Firm A and B's profits. b) Assume that Firms A and B merge together. What would be the equilibrium prices for products x and y? Calculate the profits of the new firm. c) Would the merger between A and B increase the consumer surplus? Why (not)?2. The demand schedule for the product produced by a monopolist is given in the table below. Complete the table by computing total revenue and marginal revenue. Quantity Total Marginal demanded Price (a) What do the data in the table indicate about revenue revenue the relationship between total revenue and 1 $325 $. marginal revenue? Explain. 300 275 4 250 225 6. 200 7 175 8 150 6. 125 (b) What do the data in the table indicate about 10 100 the elasticity of demand? 11 75 12 50 13 25 14 | | | | | | | |I | | %24 3.7. Monopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would and total cost would Therefore, a monopolist will produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal- revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR). 10 Demand 9 8 Inelastic Demand 7 6 Max TR 3 2 1 -1 -2 Marginal Revenue -3 -4 -5 2 3 4 6 7 8 9 10 Quantity