Micro Economics For Today
10th Edition
ISBN: 9781337613064
Author: Tucker, Irvin B.
Publisher: Cengage,
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Chapter 10, Problem 13SQP
To determine
Government ban on cigarette advertisement and the benefit to cigarette companies.
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The graph to the right represents the linear demand curve for each identical
consumer in a market that a monopoly faces. Using nonlinear price discrimination
analysis, suppose that the monopoly can make consumers a take-it-or-leave-it
offer.
Suppose the monopoly sets a price, p*, and a minimum quantity, Q*, that a
consumer must pay to be able to purchase any units at all. What price and
minimum quantity should it set to achieve the same outcome as it would if it
perfectly price discriminated?
The price should be $ and the minimum quantity is
1007
90-
80-
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30-
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10-
P, $ per unit
0
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MR
40 50 60 70
Q, Units per day
80
MC
D
90
100
Consider the relationship between monopoly pricing and the price elasticity of demand.
If demand is inelastic and a monopolist raises its price, total revenue would (DECREASE OR INCREASE) and total cost would(DECREASE OR INCREASE) . Therefore, a monopolist will (SOMETIMES, ALWAYS, NEVER) produce a quantity at which the demand curve is inelastic.
Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).
Consider the relationship between monopoly pricing and the price elasticity of demand.
If demand is inelastic and a monopolist raises its price, quantity would fall by a
▼. Therefore, a monopolist will
Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal-
revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR).
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percentage than the rise in price, causing profit to
produce a quantity at which the demand curve is elastic.
Marginal Revenue
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Inelastic Demand
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Chapter 10 Solutions
Micro Economics For Today
Ch. 10.1 - Prob. 1YTECh. 10.5 - Prob. 1GECh. 10.6 - Prob. 1YTECh. 10 - Prob. 1SQPCh. 10 - Prob. 2SQPCh. 10 - Prob. 3SQPCh. 10 - Prob. 4SQPCh. 10 - Prob. 5SQPCh. 10 - Prob. 6SQPCh. 10 - Prob. 7SQP
Ch. 10 - Prob. 8SQPCh. 10 - Prob. 9SQPCh. 10 - Prob. 10SQPCh. 10 - Prob. 11SQPCh. 10 - Prob. 12SQPCh. 10 - Prob. 13SQPCh. 10 - Prob. 1SQCh. 10 - Prob. 2SQCh. 10 - Prob. 3SQCh. 10 - Prob. 4SQCh. 10 - Prob. 5SQCh. 10 - Prob. 6SQCh. 10 - Prob. 7SQCh. 10 - Prob. 8SQCh. 10 - Prob. 9SQCh. 10 - An oligopoly is a market structure in which a. one...Ch. 10 - Prob. 11SQCh. 10 - A common characteristic of oligopolies is a....Ch. 10 - Prob. 13SQCh. 10 - Prob. 14SQCh. 10 - Prob. 15SQCh. 10 - Prob. 16SQCh. 10 - Prob. 17SQCh. 10 - Prob. 18SQCh. 10 - Prob. 19SQCh. 10 - The kinked oligopoly demand curve is a result of...
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- Consider the following version of the Hotelling location model. There are two vendors - A and B - selling softdrinks. The two firms simultaneously choose to locate anywhere along a street that is 1 unit in length (the street runs from 0 to 1). Their production costs are zero and the price for softdrink is set by the government at p. Consumers are located uniformly along the street. Each consumer always buys 1 unit of the product, but incurs a cost from travelling to the vendor, so that they buy from the closest vendor. In the Nash equilibrium of the game, • None of the other answers are correct. • A locates at 1/3 and B chooses to locate at 2/3 (or vice versa). • A and B locate in different corners. • Both A and B locate in the middle of the street. • A locates at 0.25 and B chooses to locate at 0.75 (or vice versa).arrow_forwardMonopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…arrow_forwardPlace the black point (plus symbol) on the following graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing the loss. 4.00 3.50 Monopoly Outcome 3.00 2.50 Profit 2.00 АТC 1.50 Loss 1.00 0.50 MC MR 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 QUANTITY (Thousands of cans of beer) PRICE (Dollars per unit)arrow_forward
- Market demand for the nuclear substance pluranium is given below, along with the TR for the given demand schedule. Pluranium is supplied to the world market by a monopolist. Suppose that the marginal cost of supplying an extra megatonne of pluranium is $20 and the business has FC=$60. Suppose that the monopolist can 3rd degree price discriminate and segregate market demand into two global regions - North world and South world - as follows: North world Price ($ per megaton) 80 70 60 50 40 30 20 10 0 Quantity (megatons) quantity would be 0 1 2 3 3 3 3 3 3 South world Price ($ per megaton) Quantity (megatons) 80 70 60 50 40 30 20 10 0 If they were only to service South World, then the price would be 0 0 0 0 1 2 3 4 5 and thearrow_forwardMarket demand for the nuclear substance pluranium is given below, along with the TR for the given demand schedule. Pluranium is supplied to the world market by a monopolist. Suppose that the marginal cost of supplying an extra megatonne of pluranium is $20 and the business has FC=$60. Suppose that the monopolist can 3rd degree price discriminate and segregate market demand into two global regions - North world and South world - as follows: Price ($ per megaton) 80 70 60 50 North world 40 30 20 10 0 Quantity (megatons) quantity would be 0 1 2 3 3 3 3 3 3 South world Price ($ per megaton) 80 70 60 50 40 30 20 10 0 If they were only to service North World, then the price would be Quantity (megatons) 0 0 0 0 1 2 1345 and thearrow_forwardFor each of the following statements, tell whether the statement is TRUE, FALSE, or UNCERTAIN, and explain your reasoning. a) If the good produced by a monopoly causes positive externalities, then the extra benefit of the positive externalities will mitigate any deadweight loss caused by the monopoly's pricing power. b) When income rises, a demand curve will always shift out, increasing the quantity that will be bought at all price levels. c) The demand for a good will shift inward when the price of a complementary good increases d) If rent control is imposed in a city then this will cause landlords in neighboring cities to lower their rents to compete with landlords in the rent-controlled city; otherwise, they will lose tenants to the rent-controlled cityarrow_forward
- QUESTION 2 Let a monopolist has 8 stores in a city. Using Hotelling linear city model, calculate the Total Social Surplus (TSS) and profit of the monopolist. Can we say that TSS is at its maximum when the number of firms is four? Can we say that profit is maximised when the number of firms is seven? Justify your answers clearly. (Note: Use ALL of the assumptions below and also following values for the parameters: R = $10; c = $2; N = 1000; t = $2; and F = $40 in your analysis). Assumptions : prices and quantities for the two stores given any fixed locations for the two. how the two stores would compete in terms of locations if they could move back and forth along the length of land l at zero costs. the socially efficient location of stores for any number of stores. Main Street is of length l = 1 mile; so the street begins at l = 0 and ends at l = 1. There are N identical consumers each with the same utility function equally spaced along Main Street; that is, there is a uniform…arrow_forwardA monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is Pa = 90 - Qa' and the Japanese inverse demand function is P₁ = 80 - 2Qj, where both prices, På and p₁, are measured in dollars. The firm's marginal cost of production is m = $25 in both countries. If the firm can prevent resales, what price will it charge in both markets? (Hint: The monopoly determines its optimal (monopoly) price in each country separately because customers cannot resell the good.) The equilibrium price in Japan is $ (round your answer to the nearest penny) The equilibrium price in the U.S. is $. (round your answer to the nearest penny)arrow_forwardA monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is Pa = 120-Q₂. and the Japanese inverse demand function is P₁ = 100-2Q₁ where both prices, p, and p,, are measured in dollars. The firm's marginal cost of production is m = $20 in both countries. If the firm can prevent resales, what price will it charge in both markets? (Hint: The monopoly determines its optimal (monopoly) price in each country separately because customers cannot resell the good.) The equilibrium price in Japan is $. (round your answer to the nearest penny)arrow_forward
- Let a monopolist has 8 stores in a city. Using Hotelling linear city model, calculate the Total Social Surplus (TSS) and profit of the monopolist. Can we say that TSS is at its maximum when the number of firms is four? Can we say that profit is maximised when the number of firms is seven? Justify your answers clearly. (Note: Use ALL of the assumptions from lecture note Chapter 10 and also following values for the parameters: R = $10; c = $2;N = 1000; t = $2; and F = $40 in your analysis).arrow_forwardQUESTION 4 Consider the decision tree below. This tree illustrates hypothetical payoffs to General Mills (GM) and Quaker Oats (Q) if they engage in a price war. GM Cut price No price cut Cut price No price cut GM₁ = $3 million/year Q = $3 million/year GM = $10 million/year Q = $2 million/year GM = $5 million/year Q = $5 million/year If GM cuts prices, the greatest potential gain is: a. $5 million per year b. $10 million per year c. $2 million per year Od. $3 million per year e. none of the abovearrow_forwardIn Salop’s model of entry deterrence, the unconstrained monopoly earns profits (in present value terms) equal to some amount v0. Suppose v0 = 100. If entry were to occur, the two firms would share the market, each earning v1.(A) Why do we expect 2 v1 to be less than 100 ? (B) The incumbent monopoly can prevent entry by expending a fixed and irreversible amount C that the entrant must match. What conditions on the size of C will both successfully prevent entry, and equally importantly, result in greater profit for the incumbent than by allowing entry?arrow_forward
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