microeconomics chapter 10 homework

An increase in demand will manifest itself as a rightward shift in the demand curve, and a rightward shift in marginal revenue. The shift in marginal revenue will cause a movement up the marginal cost curve to the new intersection between MR and MC at a higher level of output. The new price can be read by drawing a line up from the new output level to the new demand curve, and then over to the vertical axis. The new price should be higher. The increase in quantity will cause a movement along the average cost curve to a possibly higher level of average cost. The price, though, will increase more, causing an increase in total profits.

As long as the original firm is earning positive economic profits, other firms will respond in ways that take away the original firm’s profits. This will manifest itself as a decrease in demand for the original firm’s product, a decrease in the firm’s profit-maximizing price and a decrease in the firm’s profit-maximizing level of output, essentially unwinding the process described in the answer to question 1. In the long-run equilibrium, all firms in monopolistically competitive markets will earn zero economic profits.

• Pc > Pcc. Qc < Qcc. Profit for the cartel is positive and large. Profit for cutthroat competition is zero.

Firm B reasons that if it cheats and Firm A does not notice, it will double its money. Since Firm A’s profits will decline substantially, however, it is likely that Firm A will notice and if so, Firm A will cheat also, with the result that Firm B will lose 90% of what it gained by cheating. Firm A will reason that Firm B is unlikely to risk cheating. If neither firm cheats, Firm A earns $1000. If Firm A cheats, assuming Firm B does not cheat, A can boost its profits only a little, since Firm B is so small. If both firms cheat, then Firm A loses at least 50% of what it could have earned. The possibility of a small gain ($50) is probably not enough to induce Firm A to cheat, so in this case it is likely that both firms will collude.

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• Authors: Steven A. Greenlaw, David Shapiro
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• Book title: Principles of Microeconomics 2e
• Publication date: Sep 15, 2017
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• Book URL: https://openstax.org/books/principles-microeconomics-2e/pages/1-introduction
• Section URL: https://openstax.org/books/principles-microeconomics-2e/pages/chapter-10

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10.10: Exercises for Chapter 10

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• Douglas Curtis and Ian Irvine
• Trent University & Concordia University via Lyryx

Suppose that the monopoly in Exercise 10.2 has a large number of plants. Consider what could happen if each of these plants became a separate firm, and acted competitively. In this perfectly competitive world you can assume that the MC curve of the monopolist becomes the industry supply curve.

In the text example in Table 10.1, compute the profit that the monopolist would make if he were able to price discriminate, by selling each unit at the demand price in the market.

A monopolist is able to discriminate perfectly among his consumers – by charging a different price to each one. The market demand curve facing him is given by P =72– Q . His marginal cost is given by MC =24 and marginal revenue is MR =72–2 Q .

A monopolist faces two distinct markets A and B for her product, and she is able to insure that resale is not possible. The demand curves in these markets are given by P A =20–(1/4) Q A and P B =14–(1/4) Q B . The marginal cost is constant: MC =4. There are no fixed costs.

A concert organizer is preparing for the arrival of the Grateful Living band in his small town. He knows he has two types of concert goers: One group of 40 people, each willing to spend $60 on the concert, and another group of 70 people, each willing to spend $40. His total costs are purely fixed at $3,500.

Optional : A monopolist faces a demand curve P =64–2 Q and MR =64–4 Q . His marginal cost is MC =16.

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Micro chapter 10 【externalities】.

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