Chapter 9 Questions & Solutions

1
Chapter 9 Questions Solutions
2
Plot the marginal revenue curve associated with
the following demand curve faced by a
monopolistic competitor.
D
3
P
MR D
80 Q
40
4
Use the graph on the next slide to answer the
following questions. A. What price is charged by
the monopolistic in order to maximize profits? B.
Calculate the total revenue accruing to the
monopolist at the profit maximizing output. C.
Calculate the total cost to the monopolist at the
profit-maximizing output. D. Calculate the profit
for the monopolist. E. Calculate the total
variable and fixed costs of the monopolist at the
profit-maximizing output. F. Now assume the MC
curve represents market supply for a perfectly
competitive market. What would the equilibrium
price and quantity be for perfect competition?
Are consumers better off or worse off with
perfect competition or monopoly?
5
P
Cont.
20 13
16
15
12
6
(a) MR MC Q 20 P 20
(b) TR PQ 400 (c) ATC when Q 20
ATC 15 TC (ATC)(Q)
(25)(20) 300 (d) Profit TR - TC 400
- 300 100 (e) AVC when Q 20
AVC 12 TVC (AVC)(Q) (12)(20)
240 TFC TC - TVC 300 - 240
60 (f) P 16 Q 28
Consumer better off with Perfect Competition
Lower Price, more quantity
7
List differences and similarities among
monopolies, oligopolies, and monopolistic
competition. Be prepared to give examples of
each form of imperfect competition on the selling
side.
8
See Notes
9
Units of Total Cost of
Marginal Input Variable Input Price/Unit
Input Cost
1 2 2
2.5 3
3 4 4.5
5 6
A. Calculate the total input cost and the
marginal input cost. B. If the marginal value or
marginal revenue products were 4, what would be
the profit maximizing level of input?
10
Units of Total Cost of
Marginal Input Variable Input Price/Unit
Input Cost
1 2
2 --- 2
2.5 5
3 3
3 9
4 5 4.5
22.5 6.75
8 6
48 8.5
Rule MVP (or MRP) MIC
4 MIC Profit maximizing level of input is 3
units
11
A. Find the equilibrium price and quantity for a
monopsonist in the graph below. B. Find the
equilibrium price and quantity under perfect
competition in the graph below. C. What is the
magnitude of monopsonistic exploitation?
Supply of Input
MVP or MRP
12
(a) MIC MVP Under monopsony 10
units of input _at_ 3/unit (b) Under
perfect competition 15 units of input
_at_ 5/unit (c) Magnitude of monopsonistic
exploitation Difference in price of
input under perfect
competition versus monopoly 5 -
3 2
13
Explain the significance of the following
acts A. Clayton Act B. Capper-Volstead Act C.
Packers and Stockyards Act
14
See Notes
15
List and explain the various measures that may be
employed to counteract possible adverse effects
of imperfect competition in the marketplace.
16
See Notes
17
On the following graph, show the effect of a
lump-sum tax on a monopolist.
18
Upward shift of ATC Curve No effect on
price charged by the monopolist No effect
on quantity produced by the monopolist
But a reduction in profit occurs
19
Using the graph below, answer questions a through
d.
P
ATC
A. What are the profit-maximizing price and
quantity levels for the monopolist? B. Calculate
profit. C. Suppose the government imposes a price
ceiling of 40. Now what is the optimal price and
quantity combination? D. Calculate the new level
of profit.
20
(a) MR MC P 50 Q 25 (b) TR PQ
(50)(25) 1250 ATC when Q 25 TC
ATC)(Q) (38)(25) 950 Profit TR -
TC 300 (c ) MR MC P 40 Q
34 (d) TR PQ (40)(34) 1360 ATC
when Q 34 ATC still 38 TC
(ATC)(Q) (38)(34) 1292 Profit TR -
TC 1360-129268