Int Microeconomics Thry Midterm 2 Chapter 25
Study online at quizlet.com/_6u3wp8
1.
$1
In a market with the inverse demand curve P = 10 − Q,
Brand X is a monopolist with no fixed costs and with
a marginal cost of $2. If marginal cost rises to $4, by
how much will the price of Brand X rise?
2.
$3,200
A monopolist faces the demand curve q = 90 − p/2,
where q is the number of units sold and p is the price
in dollars. He has quasi-fixed costs, C, and constant
marginal costs of $20 per unit of output. Therefore his
total costs are C + 20q if q > 0 and 0 if q = 0. What is
the largest value of C for which he would be willing
to produce positive output?
3.
$3,200
A monopolist faces the demand curve q = 90 − p/2,
where q is the number of units sold and p is the price
in dollars. She has quasi-fixed costs, C, and constant
marginal costs of $20 per unit of output. Therefore
her total costs are C + 20q if q > 0 and 0 if q = 0.
What is the largest value of C for which she would
be willing to produce positive output?
9.
$160
An airline has exclusive landing rights at the local
airport. The airline flies one flight per day to New
York with a plane that has a seating capacity of 100.
The cost of flying the plane per day is $4,000 + 10q,
where q is the number of passengers. The number of
flights to New York demanded is q = 165 − .5p. If the
airline maximizes its monopoly profits, the difference
between the marginal cost of flying an extra
passenger and the amount the marginal passenger is
willing to pay to fly to New York is
10.
-1.20
The demand for a monopolist's output is 6,000/(p +
2)2, where p is the price it charges. At a price of $3,
the elasticity of demand for the monopolist's output
is
11.
-1.60
The demand for a monopolist's output is 3,000/(p +
2)2, where p is the price it charges. At a price of $3,
the elasticity of demand for the monopolist's output
is
4.
$8
A profit-maximizing monopolist faces a downwardsloping demand curve that has a constant elasticity
of −3. The firm finds it optimal to charge a price of
$12 for its output. What is its marginal cost at this
level of output?
12.
2
dollars
The demand for a monopolist's output is 7,000
divided by the square of the price in dollars that it
charges per unit. The firm has constant marginal
costs equal to 1 dollar per unit. To maximize its
profits, it should charge a price of
5.
$15
The demand for a monopolist's output is 6,000/(p +
3)2, where p is its price. It has constant marginal
costs equal to $6 per unit. What price will it charge
to maximize its profits?
13.
5
6.
$17
The demand for a monopolist's output is 6,000/(p +
7)2, where p is its price. It has constant marginal
costs equal to $5 per unit. What price will it charge
to maximize its profits?
The demand curve facing a monopolist is D(p) =
100/p if p is 20 or smaller and D(p) = 0 if p > 20. The
monopolist has a constant marginal cost of $1 per
unit produced. What is the profit-maximizing quantity
of output for this monopolist?
14.
10
A monopolist faces the inverse demand curve p =
120 − 6q. At what level of output is his total revenue
maximized?
15.
16
A monopolist faces the inverse demand curve p =
64 − 2q. At what level of output is his total revenue
maximized?
16.
18
Charlie can work as many hours as he wishes at a
local fast-food restaurant for a wage of $4 per hour.
Charlie also does standup comedy. Since Charlie
lives in a quiet, rather solemn Midwestern town, he is
the town's only comedian and has a local monopoly
for standup comedy. The demand for comedy is Q =
40 − P, where Q is the number of hours of comedy
performed per week and P is the price charged per
hour of comedy. When Charlie maximizes his utility,
he spends at least 1 hour per week working at the
restaurant and he gets at least 1 hour of leisure time.
His utility depends only on income and leisure. How
many hours per week does he perform standup
comedy?
7.
8.
$18
$20
A profit-maximizing monopolist faces a downwardsloping demand curve that has a constant elasticity
of −4. The firm finds it optimal to charge a price of
$24 for its output. What is its marginal cost at this
level of output?
The demand for a monopolist's output is 10,000
divided by the square of the price it charges. The
monopolist produces at a constant marginal cost of
$5. If the government imposes a sales tax of $10 per
unit on the monopolist's output, the monopolist price
will rise by
17.
20
A monopolist has constant marginal costs of $1 per
unit. The demand for her output is 1,000/p if p is less
than or equal to 50. The demand is 0 if p > 50. What
is her profit maximizing level of output?
18.
23 10q
A monopolist faces the inverse demand function
described by p = 23 − 5q, where q is output. The
monopolist has no fixed cost and his marginal cost
is $6 at all levels of output. Which of the following
expresses the monopolist's profits as a function of
his output?
19.
20.
21.
22.
25,000
26
38
45q 4q^2
A computer software firm has developed a new and
better spreadsheet program. The program is
protected by copyrights, so the firm can act as a
monopolist for this product. The demand function
for the spreadsheet is q = 50,000 − 100p. Any single
consumer will want only one copy. The marginal
cost of producing and distributing another copy and
its documentation is just $10 per copy. If the
company sells this software at the profit-maximizing
monopoly price, the number of consumers who
would not buy the software at the monopoly price
but would be willing to pay at least the marginal
cost is
An industry has two firms, a leader and a follower.
The demand curve for the industry's output is given
by p = 208 − 4q, where q is total industry output.
Each firm has zero marginal cost. The leader
chooses his quantity first, knowing that the follower
will observe the leader's choice and choose his
quantity to maximize profits, given the quantity
produced by the leader. The leader will choose an
output of
An industry has two firms, a leader and a follower.
The demand curve for the industry's output is given
by p = 456 − 6q, where q is total industry output.
Each firm has zero marginal cost. The leader
chooses his quantity first, knowing that the follower
will observe the leader's choice and choose his
quantity to maximize profits, given the quantity
produced by the leader. The leader will choose an
output of
23.
99
gallons
In some parts of the world, Red Lizzard Wine is
alleged to increase one's longevity. It is produced
by the process Q = min{(1/3)L, R}, where L is the
number of spotted red lizards and R is gallons of
rice wine. PL = PR = $1. Demand for Red Lizzard
Wine in the United States is Q = 576P−2 A1/2. If the
advertising budget is $121, the quantity of wine
which should be imported into the United States is
24.
100%
A major software developer has estimated the
demand for its new personal finance software
package to be Q = 1,000,000P−2 while the total
cost of the package is C = 100,000 + 25Q. If this
firm wishes to maximize profit, what percentage
markup should it place on this product?
25.
100%
The demand for copies of the software package
Macrosoft Doors is given by Q = 10,000P−2. The
cost to produce Doors is C = 100,000 + 5Q. If
Macrosoft practices cost plus pricing, what would
be the profit-maximizing markup?
26.
108
gallons
In some parts of the world, Red Lizzard Wine is
alleged to increase one's longevity. It is produced
by the process Q = min{(1/4)L, R}, where L is the
number of spotted red lizards and R is gallons of
rice wine. PL = PR = $1. Demand for Red Lizzard
Wine in the United States is Q = 900P−2 A1/2. If the
advertising budget is $144, the quantity of wine
which should be imported into the United States is
27.
144
An obscure inventor in Strasburg, North Dakota, has
a monopoly on a new beverage called Bubbles,
which produces an unexplained craving for
Lawrence Welk music. Bubbles is produced by the
following process: Q = min{R/2, W}, where R is
pulverized Lawrence Welk records and W is gallons
of North Dakota well water. PR = PW = $1. Demand
for Bubbles is Q = 576P−2A0.5. If the advertising
budget for Bubbles is $81, the profit-maximizing
quantity of Bubbles is
28.
160
An obscure inventor in Strasburg, North Dakota, has
a monopoly on a new beverage called Bubbles,
which produces an unexplained craving for
Lawrence Welk music. Bubbles is produced by the
following process: Q = min{R/3, W}, where R is
pulverized Lawrence Welk records and W is gallons
of North Dakota well water. PR = PW = $1. Demand
for Bubbles is Q = 1,024P−2A0.5. If the advertising
budget for Bubbles is $100, the profit-maximizing
quantity of Bubbles is
29.
225
Peter Morgan sells pigeon pies from his pushcart in
Central Park. Due to the abundant supplies of raw
materials, his costs are zero. The demand schedule
for his pigeon pies is p(y) = 150 − y/3. What level of
output will maximize Peter's profits?
A monopolist faces the inverse demand function
described by p = 50 − 4q, where q is output. The
monopolist has no fixed cost and his marginal cost
is $5 at all levels of output. Which of the following
expresses the monopolist's profits as a function of
his output?
30.
250%
A major software developer has estimated the
demand for its new personal finance software
package to be Q = 1,000,000P−1.40 while the total
cost of the package is C = 100,000 + 20Q. If this
firm wishes to maximize profit, what percentage
markup should it place on this product?
31.
average
total
cost is
greater
than
marginal
cost
A monopolist faces a downward-sloping demand
curve and has fixed costs so large that when she
maximizes profits with a positive amount of
output, she earns exactly zero profits. At this
positive, profit-maximizing output,
decrease
her price
by $5
A profit-maximizing monopolist faces a demand
function given by q = 1000 − 20p, where p is the
price of her output in dollars. She has a constant
marginal cost of 20 dollars per unit of output. In
an effort to induce her to increase her output, the
government agrees to pay her a subsidy of $10
for every unit that she produces. She will
32.
33.
34.
decrease
her price
by $20
A profit-maximizing monopolist has the cost
schedule c(y) = 20y. The demand for her product
is given by y = 600/p4, where p is her price.
Suppose that the government tries to get her to
increase her output by giving her a subsidy of $15
for every unit that she sells. Giving her the
subsidy would make her
decrease
her price
by $28
A profit-maximizing monopolist has the cost
schedule c(y) = 40y. The demand for her product
is given by y = 600/p4, where p is her price.
Suppose that the government tries to get her to
increase her output by giving her a subsidy of $21
for every unit that she sells. Giving her the
subsidy would make her
35.
decrease
his
output
A monopolist produces at a point where the price
elasticity of demand is −0.7 and the marginal cost
is $2. If you were hired to advise this monopolist
on how to increase his profits, you would find that
the way to increase his profits is to
36.
the firm
could
produce
either 5
units or
35 units
A natural monopolist has the total cost function
c(q) = 350 + 20q, where q is its output. The inverse
demand function for the monopolist's product is p
= 100 − 2q. Government regulations require this
firm to produce a positive amount and to set
price equal to average costs. To comply with
these requirements
37.
The firm
produce
zwiffle only
if F is less
than or equal
to 36
A firm has discovered a new kind of
nonfattening, non-habit-forming dessert
called zwiffle. It doesn't taste very good, but
some people like it and it can be produced
from old newspapers at zero marginal cost.
Before any zwiffle could be produced, the
firm would have to spend a fixed cost of $F.
Demand for zwiffle is given by the equation
q = 12 − p. The firm has a patent on zwiffle, so
it can have a monopoly in this market.
38.
the firm will
lose $750
A monopolist has the total cost function c(q)
= 750 + 5q. The inverse demand function is
140 − 7q, where prices and costs are
measured in dollars. If the firm is required by
law to meet demand at a price equal to its
marginal costs,
39.
the firm will
lose $800
A monopolist has the total cost function c(q)
= 800 + 8q. The inverse demand function is
80 − 6q, where prices and costs are
measured in dollars. If the firm is required by
law to meet demand at a price equal to its
marginal costs,
40.
The firm will
produce
zwiffle only
if F is less
than or equal
to 100
A firm has discovered a new kind of
nonfattening, non-habit-forming dessert
called zwiffle. It doesn't taste very good, but
some people like it and it can be produced
from old newspapers at zero marginal cost.
Before any zwiffle could be produced, the
firm would have to spend a fixed cost of $F.
Demand for zwiffle is given by the equation
q = 20 − p. The firm has a patent on zwiffle,
so it can have a monopoly in this market.
41.
goes down
and its
demand for
gravel may
go up, down
or remain the
same,
depending
on the
demand
function for
the concrete.
The Hard Times Concrete Company is a
monopolist in the concrete market. It uses
two inputs, cement and gravel, which it buys
in competitive markets. The company's
production function is q = c1/2g1/2, where q
is its output, c is the amount of cement it
uses, and g is the amount of gravel it uses. If
the price of cement goes up, the firm's
demand for cement
42.
having it
typeset and
selling 2,300
copies
The demand for Professor Bongmore's new
book is given by the function Q = 5,000 −
100p. If the cost of having the book typeset is
$9,000, if the marginal cost of printing an
extra copy is $4, and if he has no other costs,
then he would maximize his profits by
43.
If he sells at a
positive price,
demand must
be inelastic at
that price
A monopolist receives a subsidy from the
government for every unit of output that is
consumed. He has constant marginal costs
and the subsidy that he gets per unit of
output is greater than his marginal cost of
production. But to get the subsidy on a
unit of output, somebody has to consume
it.
44.
if the industry is
competitive,
output will be
exactly twice as
great as it
would be if the
industry were
monopolized
The demand curve for the output of a
certain industry is linear; q = A − Bp. There
are constant marginal costs of C. For all
values of A, B, and C such that A > 0, B >
0, and 0 < C < A/B,
increase its
price by 1
dollars
A profit-maximizing monopoly faces an
inverse demand function described by the
equation p(y) = 30 − y and its total costs
are c(y) = 5y, where prices and costs are
measured in dollars. In the past it was not
taxed, but now it must pay a tax of 2
dollars per unit of output. After the tax, the
monopoly will
45.
46.
increase its
price by 3
dollars
A profit-maximizing monopoly faces an
inverse demand function described by the
equation p(y) = 40 − y and its total costs
are c(y) = 7y, where prices and costs are
measured in dollars. In the past it was not
taxed, but now it must pay a tax of 6
dollars per unit of output. After the tax, the
monopoly will
47.
marginal
revenue equal
to marginal cost
A profit-maximizing monopolist sets
48.
the monopolist
cannot be
maximizing
profits.
A monopolist faces a constant marginal
cost of $1 per unit. If at the price he is
charging, the price elasticity of demand
for the monopolist's output is −0.5, then
49.
The
monopolist
keep his
price
constant and
his sales
double
A monopolist enjoys a monopoly over the
right to sell automobiles on a certain island.
He imports automobiles from abroad at a
cost of $10,000 each and sells them at the
price that maximizes profits. One day, the
island's government annexes a neighboring
island and extends the monopolist's
monopoly rights to this island. People on the
annexed island have the same tastes and
incomes and there are just as many people as
on the first.
50.
None of the
above
Peter Morgan sells pigeon pies from his
pushcart in Central Park. Due to the abundant
supplies of raw materials, his costs are zero.
The demand schedule for his pigeon pies is
p(y) = 80 − y/4. What level of output will
maximize Peter's profits?
51.
not change
its price or
the quantity
it sells.
A monopoly has the demand curve q =
10,000 − 100p. Its total cost function is c(q) =
1,000 + 10q. The government plans to tax the
monopoly's profits at a rate of 50%. If it does
so, the monopoly will
52.
not having it
typeset and
not selling
any copies
The demand for Professor Bongmore's new
book is given by the function Q = 2,000 −
100p. If the cost of having the book typeset is
$7,000, if the marginal cost of printing an
extra copy is $4, and if he has no other costs,
then he would maximize his profits by
53.
p/2 - 3/2
A monopolist faces the demand function Q =
7,000/(p + 3)−2. If she charges a price of p,
her marginal revenue will be
54.
p/2 - 6/2
A monopolist faces the demand function Q =
4,000/(p + 6)−2. If she charges a price of p,
her marginal revenue will be
55.
A Pareto
improvement
could be
achieved by
having
government
pay for the
firm a
subsidy of
$59 and
insisting that
the firm
offer Slops
at zero price
A firm has invented a new beverage called
Slops. It doesn't taste very good, but it gives
people a craving for Lawrence Welk's music
and Professor Johnson's jokes. Some people
are willing to pay money for this effect, so
the demand for Slops is given by the
equation q = 14 − p. Slops can be made at
zero marginal cost from old-fashioned
macroeconomics books dissolved in
bathwater. But before any Slops can be
produced, the firm must undertake a fixed
cost of $54. Since the inventor has a patent
on Slops, it can be a monopolist in this new
industry.
A Pareto
improvement
could be
achieved by
having the
government
pay the firm
a subsidy of
$35 and
insisting that
the firm
offer Slops
at zero price
A firm has invented a new beverage called
Slops. It doesn't taste very good, but it gives
people a craving for Lawrence Welk's music
and Professor Johnson's jokes. Some people
are willing to pay money for this effect, so
the demand for Slops is given by the
equation q = 10 − p. Slops can be made at
zero marginal cost from old-fashioned
macroeconomics books dissolved in
bathwater. But before any Slops can be
produced, the firm must undertake a fixed
cost of $30. Since the inventor has a patent
on Slops, it can be a monopolist in this new
industry.
57.
produces
more output
than it would
if it were
maximizing
profits
A certain monopolist has a positive marginal
cost of production. Despite this fact, the
monopolist decides to produce a quantity of
output that maximizes total revenues. Assume
that the marginal revenue curve for this
monopolist always has a negative slope.
Then the monopolist
58.
produce too
little output
from the
standpoint
of efficiency
A monopolist has decreasing average costs
as output increases. If the monopolist sets
price equal to average cost, it will
Q = 101 and
P = 49.83
The Fabulous 50s Decor Company is the only
producer of pink flamingo lawn statues.
While business is not as good as it used to
be, in recent times the annual demand has
been Q = 400 − 6P. Flamingo lawn statues are
handcrafted by artisans using the process Q =
min{L, P/2} where L is hours of labor and P is
pounds of pink plastic. PL = 15 and PP = 3.
What would be the profit-maximizing output
and price?
56.
59.
60.
Q = 265 and
P = 87
The Fabulous 50s Decor Company is the only
producer of pink flamingo lawn statues.
While business is not as good as it used to
be, in recent times the annual demand has
been Q = 700 − 5P. Flamingo lawn statues are
handcrafted by artisans using the process Q =
min{L, P/7} where L is hours of labor and P is
pounds of pink plastic. PL = 20 and PP = 2.
What would be the profit-maximizing output
and price?
61.
raise prices
The Cleveland Visitors Bureau is the exclusive
national marketer of weekend getaway
vacations in Cleveland, Ohio. At current
market prices, the price elasticity of demand
is −1. To maximize profits, the bureau should
62.
raise prices
The Cleveland Visitors Bureau is the exclusive
national marketer of weekend getaway
vacations in Cleveland, Ohio. At current market
prices, the price elasticity of demand is −.50. To
maximize profits, the bureau should
63.
rises by $5
A profit-maximizing monopolist faces the
demand curve q = 100 − 3p. It produces at a
constant marginal cost of $20 per unit. A
quantity tax of $10 per unit is imposed on the
monopolist's product. The price of the
monopolist's product
64.
there is no
price at
which ticket
revenues
still cover
costs but
total
number
surplus
from the
rink
exceeds
costs
The town council of Frostbite, Ontario, is trying
to decide whether to build an outdoor skating
rink which would cost $1 million and last for
only one season. Operating costs would be
zero. Yearly passes would be sold to anyone
who wanted to use the rink. If p is the price of
the pass in dollars, the number demanded
would be q = 1200 − .6p. The council has asked
you to advise them on building the rink. You
should tell them that
65.
to
maximize
profits, he
should
charge a
price of
$1.33
A monopolist faces a constant marginal cost of
$1 per unit and has no fixed costs. If the price
elasticity of demand for this product is
constant and equal to −4, then
66.
to
maximize
profits, he
should
charge a
price of
$1.50
A monopolist faces a constant marginal cost of
$1 per unit and has no fixed costs. If the price
elasticity of demand for this product is
constant and equal to −3, then