| Question |
|---|
| Five networks are vying to receive the pay-per-view broadcast rights to the World Series of Yahtzee. Each estimates that the inverse demand for watching this nail-biter of an event is given by P = 100 – 0.01Q. Each can provide the broadcast at a constant marginal cost of $1 per viewer. a. Calculate the deadweight loss of monopoly in the market for the televised Yahtzee tournament. b. Suppose that tournament Yahtzee’s governing body plans to select one network at its discretion to air the tournament. How much will each network be willing to spend lobbying for the broadcast rights? c. Explain why, in this situation, the losses to society are much greater than just the deadweight losses of monopoly. |
Five networks are vying to receive the pay-per-view broadcast rights
Consider the firm depicted in the diagram below. a. Is the
| Question |
|---|
| a. Is the firm a natural monopoly? How do you know? b. Will this firm earn a profit if it is not subject to regulation? How do you know? c. If the government requires the firm to charge no more than its marginal cost of production, how many units will be sold? At what price? What is the problem with the government capping prices at marginal cost? d. Suppose the government allows firms to charge no more than their average total costs of production. How many units will this firm sell? At what price? What is the problem with capping prices at average total cost? e. Evaluate the deadweight loss under each of the three pricing regimes above. Show each regime’s deadweight loss as an area on the graph. |
Consider a small, isolated town in which a brewery faces
| Question |
|---|
| Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 – 0.33Q. The brewery can produce beer at a constant marginal and average total cost of $1 per bottle. a. Calculate the profit-maximizing price and quantity, as well as producer and consumer surplus and the deadweight loss from market power. b. If it were possible to organize the townsfolk, how much would they be willing to pay the brewery to sell beer at a price equal to its marginal cost? c. What is the minimum payment the brewery would be willing to accept to sell beer at a price equal to marginal cost? d. Is there potentially a bargain that can be struck between the townsfolk and brewery? What would the deadweight loss be if such a bargain were struck? |
Suppose that a monopolistic seller of flux capacitors faces the
| Question |
|---|
| Suppose that a monopolistic seller of flux capacitors faces the inverse demand curve P = 40 – 0.5Q, and that the monopolist can produce flux capacitors at a constant marginal cost of $5. a. How many units will an unregulated monopolist sell? b. Suppose that the government imposes a price ceiling of $6. What does this price ceiling do to the monopolist’s marginal revenue curve? Specifically, what is the marginal revenue of the 10th unit? The 68th? How about the 69th? c. How many units will a profit-maximizing monopolist sell when the price ceiling is in place? At what price? d. Compare the deadweight loss of unregulated monopoly to the deadweight losses with the price ceiling. Does the price ceiling improve social welfare? |
Suppose that a monopolistic seller of flux capacitors faces the
| Question |
|---|
| Suppose that a monopolistic seller of flux capacitors faces the inverse demand curve P = 40 – 0.5Q, and that the monopolist can produce flux capacitors at a constant marginal cost of $5. a. How many units will an unregulated monopolist sell? b. Suppose that the government imposes a price ceiling of $6. What does this price ceiling do to the monopolist’s marginal revenue curve? Specifically, what is the marginal revenue of the 10th unit? The 68th? How about the 69th? c. How many units will a profit-maximizing monopolist sell when the price ceiling is in place? At what price? d. Compare the deadweight loss of unregulated monopoly to the deadweight losses with the price ceiling. Does the price ceiling improve social welfare? |
Consider the market for Pop Rocks depicted in the diagram
| Question |
|---|
| a. If the Pop Rock industry were competitive, what would the competitive price and quantity be? b. If the Pop Rock industry were competitive, what would be the consumer and producer surpluses, respectively? c. Suppose that gangland figure Tommy Vercetti monopolizes the Pop Rock market. What price and quantity will he choose to maximize profit? d. Calculate the consumer and producer surplus of this Pop Rock monopoly. e. Compare your answers to (d) and (b). How big is the deadweight loss of monopoly? |
A monopolistic seller of fairy dust faces the following inverse
| Question |
|---|
| A monopolistic seller of fairy dust faces the following inverse demand curve: P = 100 – Q, where Q is smidgens of fairy dust per week. Fairy dust can be produced at a constant marginal cost of $20 per smidgen. a. Graph this demand curve. Then, calculate the profit-maximizing price and quantity of fairy dust. Finally, calculate the seller’s profit. b. A midsummer’s druid festival greatly increases the demand for fairy dust, so that the price any particular consumer is willing to pay doubles. The inverse demand curve is now given by P = 200 – 2Q. Verify graphically that demand has increased and calculate the new profit-maximizing price and quantity. c. A tour bus full of druids took a wrong left turn at Albuquerque and showed up in town by accident. Now there are twice as many buyers at any price as there were before, and the inverse demand the seller faces is given by P = 100 – 0.5Q. Verify graphically that demand has increased and calculate the new profit-maximizing price and quantity. d. Suppose that the demand shift the seller faces is a parallel shift of the inverse demand curve such as P = 150 – Q. Verify graphically that demand has increased and calculate the new profit-maximizing price and quantity. e. What do your answers to (b), (c), and (d) indicate about how monopolistic suppliers respond to increases in demand? |
Suppose that econometricians at Hallmark Cards determine that the price
| Question |
|---|
| Suppose that econometricians at Hallmark Cards determine that the price elasticity of demand for greeting cards is – 2. a. If Hallmark’s marginal cost of producing cards is constant and equal to $1.00, use the Lerner index to determine what price Hallmark should charge to maximize profit. b. Suppose that Hallmark Cards wishes to know the price elasticity of demand faced by its archrival, American Greetings. Hallmark hires you to estimate it. Hallmark provides you with an educated guess concerning the marginal cost of producing a greeting card, which they estimate to be constant and equal to $1.22. A quick trip to the store tells you that American Greetings is selling its cards for an average of $3.25. Using these numbers and assuming that American Greetings is maximizing its profit, calculate the price elasticity of demand faced by American Greetings. |
Suppose that the demand for bentonite is given by Q
| Question |
|---|
| Suppose that the demand for bentonite is given by Q = 40 – 0.5P, where Q is in tons of bentonite per day and P is the price per ton. Bentonite is produced by a monopolist at a constant marginal and average total cost of $10 per ton. a. Derive the inverse demand and marginal revenue curves faced by the monopolist. b. Equate marginal cost and marginal revenue to determine the profit-maximizing level of output. c. Find the profit-maximizing price by plugging the ideal quantity back into the demand curve. d. How would your answer change if marginal cost were instead given by MC = 20 + Q? |
People are always complaining about Facebook: It changed the way
| Question |
|---|
| People are always complaining about Facebook: It changed the way its news feed works, the privacy settings are awful, there are too many game notifications, and so on. Recognizing dissatisfaction with Facebook, Google tried three times to enter the social networking market, first with Buzz, then with Wave, and now with Google Plus. Users say that the Google Plus platform is far superior to Facebook’s, yet Google Plus appears to be failing. Explain why consumers might reject a superior product for an inferior one in a market like this. |
