ECON 212 Quiz: ECON 212quizquiz5b.w06

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31 Jan 2019

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[3 marks] assume that a monopolist sells a product with a total cost function of tc = 200 + q^2. The market demand curve is given by: p = 1000 q. Assume that government imposes a tax of per unit of output produced by the monopolist. Find the profit maximizing price and output for the monopolist. Total (after tax) revenue = p q 10 q = (1000-q) q 10 q. 990- 2 q = 2q implies q = 990/4 = 247. 5. Firm a"s cost function is c(qa) = 10qa, where qa is firm a"s output. Firm b"s cost function is c(qb) = 20qb. Firm a, the follower"s profit maximizing condition given qb (the output of firm b) is: Mr = mc implies 200 qa qb qa = 10. This gives: qa = (200 qb 10)/2 = 95 (0. 5)qb. Keeping this in mind, firm b has total revenue = (200 qb [95- 0. 5qb])qb.

Related Questions

Suppose that there are two firms competing in the market for taxi services. Big Ben Taxis has the marginal cost MCB = $9 per trip, and the fixed cost FCB = $3,000,000. While Whitehall Taxis has the marginal cost MCW = $15 per trip, and the fixed cost FCW = $1,000,000. Inverse demand for taxi trips in the market is given by the function, P = 75 â Q/10,000 . In this equation, P is the price of a taxi trip, and Q is the total quantity of taxi trips supplied by the two taxi companies.

Question 1: Find the equilibrium price and quantities for the case in which the two taxi companies engage in Cournot (quantity) competition. What profits will Big Ben Taxis and Whitehall Taxis earn. (11 Marks)

Question 2: Using your answers to question 1, determine which firm has the greater market power. (4 Marks)

Question 3: Now suppose that a firm can only supply taxi services if it purchases a licence from the government. What is the highest fee that the government can charge for a license, if the government wants both Big Ben Taxis and Whitehall Taxis to purchase a license? (Note: A licence does not place a limit on the number of taxi trips a company can supply. You should assume that both firms are charged the same fee.) (2 Marks)

Question 4: If, instead, the government wants to maximise the revenue it receives from taxi license fees, how many licenses should it sell, and what fee should it charge? (8 Marks)

Q1 and Q2 answered, can anyone help with Q3 and Q4?

)P = 75 - (Q / 10,000) = 75 - [(QB + QW) / 10,000] (

QB, QW: Quantity of Big Ben & Whitehall respectively)

Total revenue, Big Ben, TRB = P x QB = 75QB - [(QB2 + QW.QB) / 10,000]

Marginal revenue, Big Ben, MRB = dTRB / dQB = 75 - [(2QB + QW) / 10,000]

Equating MRB with MCB, 75 - [(2QB + QW) / 10,000] = 9 750,000 - 2QB - QW = 90,000 2QB + QW = 660,000 .......(1) [Reaction function of Big Ben]

Total revenue, Whitewall, TRW = P x QW = 75QW - [(QW.QB + QW2) / 10,000]

Marginal revenue, Whitehall, MRW = dTRW / dQW = 75 - [(QB + 2QW) / 10,000]

Equating with MCW, 75 - [(QB + 2QW) / 10,000] = 15 750,000 - QB - 2QW = 150,000 QB + 2QW = 600,000 .....(2) [Reaction function of Whitehall]

Cournot equilibrium is obtained by solving (1) and (2).

2QB + QW = 660,000 .......(1) (2) x 2 results: 2QB + 4QW = 1,200,000 ...(3)

(3) - (1) yields:

3QW = 540,000 QW = 180,000 QB = 600,000 - 2QW = 600,000 - (2 x 180,000) = 600,000 - 360,000 = 240,000

Q = QW + QB = 180,000 + 240,000 = 420,000 P = 75 - (420,000 / 10,000) = 75 - 42 = 33

Profit = Total revenue - Total cost = (P x Q) - [FC + (MC x Q)] = Q x (P - MC) - FC [FC: Fixed cost]

Profit, Big Ben = [240,000 x (33 - 9)] - 3,000,000 = (240,000 x 24) - 3,000,000 = 5,760,000 - 3,000,000 = 2,760,000

Profit, Whitehall = [180,000 x (33 - 15) - 1,000,000 = (180,000 x 18) - 1,000,000 = 3,240,000 - 1,000,000 = 2,240,000 (3)

The fixed fee charged by government is equal to consumer surplus (CS) for each company, where CS is the area between demand curve and market price.

From demand curve, When Q = 0, P = 75 [Reservation price] For Big Ben, CS = (1/2) x $(75 - 33) x 240,000 = (1/2) x $42 x 240,000 = $5,040,000

This is the maximum license fee for Big Ben. For Whitehall, CS= (1/2) x $(75 - 33) x 180,000 = (1/2) x $42 x 180,000 = $3,780,000

This is the maximum license fee for Whitehall. (4) Revenue is maximized when marginal revenue is zero.

Marginal revenue, Big Ben, MRB = dTRB / dQB = 75 - [(2QB + QW) / 10,000] So, 75 - [(2QB + QW) / 10,000] = 0 750,000 - 2QB - QW = 0 2QB + QW = 750,000 ......(4)

Marginal revenue, Whitehall, MRW = dTRW / dQW = 75 - [(QB + 2QW) / 10,000] So, 75 - [(QB + 2QW) / 10,000] = 0 750,000 - QB - 2QW = 0 QB + 2QW = 750,000 ....(5) Multiplying (5) by 2, 2QB + 4QW = 1,500,000 ......(6) 2QB + QW = 750,000 ...... (4) (6) - (4) gives: 3QW = 750,000 QW = 250,000 QB = 750,000 - (2 x 250,000) = 750,000 - 500,000 = 250,000 Q = QB + QW = 250,000 + 250,000 = 500,000 P = 75 - (500,000 / 10,000) = 75 - 50 = $25

ceriseeel551

Question 1 (1 point) Question 1 Unsaved In a competitive market the equilibrium price is determined: Question 1 options: at the intersection of the firmâs demand and the market supply curves. at the intersection of the market demand and supply curves. at the intersection of the firmâs demand and marginal cost curves. so as to cover the costs of the potential firms. so as to cover the costs of the firms currently in the industry. Save Question 2 (1 point) Question 2 Unsaved If the perfectly competitive market demand for gym shoes is given by QD = 100 â P and the market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be: Question 2 options: P = 50 and Q = 50. P = 40 and Q = 90. P = 40 and Q = 60. P = 30 and Q = 70. P = 25 and Q = 75. Save Question 3 (1 point) Question 3 Unsaved A constant-cost industry is one in which: Question 3 options: input prices do not change over time. technology does not change over time. input prices and technology do not change as firms enter or exit the industry. input prices and technology do not change over time. firms have reached the maturity phase of the industryâs life cycle. Save Question 4 (1 point) Question 4 Unsaved At the profit-maximizing level of output for the monopolist: Question 4 options: total revenue is equal to total cost. total costs are minimized. total revenue is maximized. marginal revenue is equal to marginal cost. average revenue is equal to average cost. Save Question 5 (1 point) Question 5 Unsaved Craigâs Red Sea Restaurant is the only restaurant in Columbia, South Carolina, that sells Ethiopian food. The demand for Ethiopian food is given by Q = 25 â P. Craigâs costs are given by TC = 25 + Q + 5Q2. Its maximum monopoly profit is: Question 5 options: â$1. $21. $22. $24. $26. Save Question 6 (1 point) Question 6 Unsaved So long as price exceeds average variable cost, in the model of monopolistic competition, a firm maximizes profits by producing where: Question 6 options: the difference between marginal revenue and marginal cost is maximized. marginal cost equals marginal revenue. marginal revenue equals price. the difference between price and marginal cost is maximized. price equals marginal cost. Save Question 7 (1 point) Question 7 Unsaved If a firm in a monopolistically competitive industry is profit maximizing, it should choose its level of advertising such that the marginal revenue of an additional dollar of advertising: Question 7 options: is equal to the elasticity of its demand curve minus 1. is exactly $1. increases revenues by $1. is equal to 1 plus the elasticity of its demand curve. is equal to the elasticity of its demand curve. Save Question 8 (1 point) Question 8 Unsaved Firms advertise in order to: Question 8 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 9 (1 point) Question 9 Unsaved Firms offer promotions in order to: Question 9 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 10 (1 point) Question 10 Unsaved If the demand increases for the product of a decreasing-cost industry: Question 10 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. long-run price goes up, but short-run price may go up or down. Save Question 11 (1 point) Question 11 Unsaved If the demand increases for the product of an increasing-cost industry: Question 11 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. short-run price goes up, and long-run price goes up. Save Question 12 (1 point) Question 12 Unsaved When Pan United Airlines gives a $400 fare discount to persons with student IDs, they are practicing: Question 12 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 13 (1 point) Question 13 Unsaved When a utility charges homeowners less than big industrial users, it is practicing: Question 13 options: first-degree price discrimination. fourth-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 14 (1 point) Question 14 Unsaved Cereal manufacturersâ use of coupons can be partially explained by: Question 14 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 15 (1 point) Question 15 Unsaved If a firm supplies separable markets with price elasticities h1 and h2, it should set prices P1 and P2 so that: Question 15 options: P1h1 = P2h2. P1 /h1 = P2 /h2. P1(1 + 1/h1) = P2 (1 + 1/h2). P1/(1 â 1 /h1) = P2 / (1 â 1/h2). P1 = 1 â 1/h1 and P2 = 1 â 1/h2. Save Question 16 (1 point) Question 16 Unsaved If a firm supplies separable markets with price elasticities h1 = â3 and h2 = â2, it should set prices P1 and P2 so that: Question 16 options: P1 = P2. 3P1 = 2P2. 2P1 = 3P2. 2/3P1 = 1/2P2. 2P1 = 2/3P2. Save Question 17 (1 point) Question 17 Unsaved Women are often charged more than men for haircuts performed by the same haircutter. This is not considered price discrimination because: Question 17 options: women receive more consumer surplus from haircuts than men receive. haircutters claim to spend more time on womenâs hair, raising the cost of the haircut to the firm. firms make up the extra cost to consumers by giving women free samples of products. men receive more consumer surplus from haircuts than women receive. women have a lower price elasticity of demand for haircuts. Save Question 18 (1 point) Question 18 Unsaved If price is above the average variable cost but below the average total cost of a representative firm in a competitive industry: Question 18 options: there will be entry to the industry over time. there will be exit from the industry over time. the firms in the industry are just earning a normal rate of return. the firms in the industry are earning a supranormal rate of return. the industry is in long-run equilibrium. Save Question 19 (1 point) Question 19 Unsaved Joeâs T-shirts has costs given by TC = $100 + 3Q, where Q is the number of shirts. If Joe charges $5 each, the percentage markup for 100 shirts is: Question 19 options: 20%. 25%. 33%. 50%. 67%. Save Question 20 (1 point) Question 20 Unsaved In the model of monopolistic competition, there can be short-run: Question 20 options: losses or profits, but there must be profits in long-run equilibrium. profits, but there must be losses in long-run equilibrium. losses or profits, but there must be losses in long-run equilibrium. losses or profits, but there must be neither profits nor losses in long-run equilibrium. losses, but there must be profits in long-run equilibrium.

If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost

iii

i and iii

ii and iv

A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firms short run average total cost curve is U-shaped

#10

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

#11

A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

is operating at a loss that could be reduced by shutting down

is operating at a profit that could be increased by producing more output

is operating at a loss that is less than the loss incurred by shutting down

#12

Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:

produce 48 units of output, charge a price of $110, and earn a total profit of $5280

produce 48 units of output, charge a price of $110, and earn a total profit of $2744

produce 52 units of output, charge a price of $134, and earn a total profit of $5322

produce 52 units of output, charge a price of $134, and earn a total profit of $4016