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| Consider the demand for schnitzel in the diagram on the right. Suppose that there is a single seller of schnitzel, who acts as a single-price monopolist. a. Indicate the profit-maximizing price and quantity. b. List the areas of consumer and producer surplus. c. Suppose the seller begins perfectly price discriminating. How many schnitzels will she sell? d. What happens to areas A and B when the seller begins perfectly price discriminating? e. What happens to areas E and H when the seller begins perfectly price discriminating? |
Consider the demand for schnitzel in the diagram on the
Suppose that American Borax is a monopolist and that the
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| Suppose that American Borax is a monopolist and that the worldwide demand for borax is Q = 100 – P where Q is tons of borax and P is the price per ton. The total cost function for American Borax is TC = 10Q + 0.5Q2. a. Write out the firm’s total revenue as a function of Q. b. What is the profit function for American Borax? c. Find the firm’s profit-maximizing quantity by applying calculus to the profit function. d. Find American Borax’s profit-maximizing price and profit. |
Irwin is a monopoly seller of specialty bearings. Consider the
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| a. Find the monopolist’s profit-maximizing level of output. b. Determine the price the monopolist should charge to maximize profit. c. Draw an appropriate rectangle on your graph to represent the total revenue the seller receives from selling the profit-maximizing quantity of bearings at the profit-maximizing price. d. Draw an appropriate rectangle on your graph to represent the total cost of producing ball bearings. e. The difference in the areas you drew in (c) and (d) represents profit. Calculate the profit Irwin earns from selling 30-weight ball bearings. |
Consider the graph below, which illustrates the demand for Fluff.
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| a. Draw in a carefully constructed marginal revenue curve. b. Apply the MR = MC rule to determine the profit-maximizing level of output. What price must the monopolist charge to maximize profit? c. Calculate the profit earned by the monopolist. d. The slope of the demand curve indicates that in order to sell one more unit, the price must fall by 20 cents. Verify that the seller cannot increase profit by reducing price and selling slightly more. e. The slope of the demand curve indicates that if the price of Fluff increases by 20 cents, consumers will buy one less unit. Verify that the seller cannot increase profit by increasing price and selling slightly less. |
In the chapter, we noted that the marginal revenue a
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| In the chapter, we noted that the marginal revenue a seller receives can be expressed as MR = P + (?P/?Q) × Q. a. Using this formula as a starting point, show that marginal revenue can be expressed as MR = P(1 + 1/ ED), where ED is the price elasticity of demand. b. Using your knowledge about the price elasticity of demand, explain why the marginal revenue a firm with market power receives must always be less than the price. c. Using your knowledge of the price elasticity of demand, explain why the marginal revenue a perfectly competitive firm receives must be equal to the price. |
The demand for saffron is highly elastic. The demand for
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| The demand for saffron is highly elastic. The demand for cigarettes is highly inelastic. The demand for peanut butter is unit-elastic. a. If saffron producers reduce the price of saffron, what will happen to total revenue as a result? Will marginal revenue be positive, zero, or negative? b. If cigarette makers reduce the price of cigarettes, what will happen to total revenue as a result? Will marginal revenue be positive, zero, or negative? c. If peanut butter producers reduce the price of peanut butter, what will happen to total revenue as a result? Will marginal revenue be positive, zero, or negative? |
In Cleveland, Clive sells 15 cloves at a price of
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| In Cleveland, Clive sells 15 cloves at a price of $5 each. If Clive lowers his price by 10%, to $4.50 per clove, he will sell 16, or 6.66% more. In Dallas, Della sells 15 cloves for $5 each. If Della lowers her price by 2%, to $4.90, she will sell 16 cloves, or 6.66% more. a. Classify the demand curves that Clive and Della face as elastic or inelastic. b. Determine the marginal revenue of the 16th unit for Clive. Then, compute the marginal revenue of the 16th unit for Della. c. How does the marginal revenue received by a seller depend on the price elasticity of demand? Explain your answer. |
Consider the demand curve for otter food shown below: a. Indicate
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| a. Indicate the area representing the total revenue Oscar the otter food seller would receive if he chose a price of $6. b. On the same graph, indicate the area representing the total revenue Oscar the seller would receive if he chose a price of $5. c. You should now have added two rectangles to your graph; however, because of some overlap, it actually appears that you’ve added three. One of the three is common to both scenarios above. The other two (smaller) rectangles are specific to scenario (a) or scenario (b). Label each rectangle with “A,” “B,” or “both” to indicate which scenario each rectangle belongs to. d. Indicate what happens (gain or loss) to rectangle A as Oscar reduces his price from $6 to $5. Why? e. Indicate what happens (gain or loss) to rectangle B as Oscar reduces his price from $6 to $5. Why? f. Calculate the area of rectangle A and the area of rectangle B. Then, subtract the area of A from the area of B. g. Calculate the marginal revenue Oscar receives when he sells a 4th unit. Does your answer agree with the number you calculated in (f)? Explain. |
In the early days of navigation, sailors had a tough
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| In the early days of navigation, sailors had a tough time figuring out exactly where they were. Pinpointing latitude was easy enough with a sextant, but because the earth was constantly spinning, pinpointing longitude by using celestial bodies was impossible. Anxious for a solution to this problem, the British government sponsored a contest with a prize of £20,000 (about $5 million in today’s dollars) to the inventor who could devise a reliable method of calculating longitude. Once invented, the method would be made available to anybody who wanted to use it. Explain the advantages of such a system in maximizing social well-being relative to the traditional system of awarding patents. |
Sally sells seashells by the seashore. When Sally prices her
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| Sally sells seashells by the seashore. When Sally prices her shells at $7 each, she sells 5 shells every day. When she prices her shells at $6, she sells 6. a. What is Sally’s total revenue when she chooses to sell 5 shells (by pricing at $7)? b. What is Sally’s total revenue when she chooses to sell 6 shells (by pricing at $6)? c. What is the marginal revenue Sally receives from deciding to sell a 6th shell? d. The 6th shell sells for a price of $6. Why is the marginal revenue from selling a 6th shell so much lower than $6? |
