Monopoly

# Monopoly - Practice Questions Chapter 4 Monopolies 1 A...

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Practice Questions: Chapter 4 Monopolies 1. A firm's demand curve is given by P = 500 - 2Q. The firm's current price is \$300 and the firm sells 100 units of output per week. a. Calculate the firm's marginal revenue at the current price and quantity using the expression for marginal revenue that utilizes the price elasticity of demand. b. Assuming that the firm's marginal cost is zero, is the firm maximizing profit? 2. Determine the "rule-of-thumb" price when the monopolist has a marginal cost of \$25 and the price elasticity of demand of -3.0. 3. LeAnn's telecommunications firm has a monopoly in the local market. The elasticity of demand is -4 at every price (Note: Demand is not linear.). LeAnn's marginal costs are constant at \$0.90. If LeAnn is maximizing profits, calculate the price she is charging. If the local community institutes a \$0.10 tax on each unit LeAnn sells, calculate the new price LeAnn will charge consumers. What portion of the tax does LeAnn absorb?

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1. Solution: a. Begin by calculating the price elasticity of demand, ED:
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Monopoly - Practice Questions Chapter 4 Monopolies 1 A...

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