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Homework 5

# Homework 5 - Price Quantity demanded Total revenue Marginal...

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Spring 2009 Name: ___________________ ECON 203: Principles of Microeconomics TA: ______________________ Homework 5 (10 points) Due in Discussion Session in the Week of April27 th - May 1 st , 2009 1. In the following table are demand and cost data for a pure monopolist. Quantity Price Total revenue Marginal revenue Total cost Marginal cost 0 \$34 \$_____ \$ 20 1 32 _____ \$_____ 36 \$_____ 2 30 _____ _____ 46 _____ 3 28 _____ _____ 50 _____ 4 26 _____ _____ 54 _____ 5 24 _____ _____ 56 _____ 6 22 _____ _____ 64 _____ 7 20 _____ _____ 80 _____ 8 18 _____ _____ 100 _____ 9 16 _____ _____ 128 _____ 10 14 _____ _____ 160 _____ (a) Complete the table by filling in the columns for total revenue, marginal revenue, and marginal cost. (2 points) (b) What output will the monopolist produce? (1 point)

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(c) What price will the monopolist charge? (1 point) (d) What total profit will the monopolist receive at the profit-maximizing level of output? (1 point) 2. The kinked-demand schedule that an oligopolist believes confronts the firm is given in the table below.
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Unformatted text preview: Price Quantity demanded Total revenue Marginal revenue per unit \$17.40 150 \$_____ 16.80 300 _____ \$_____ 16.20 450 _____ _____ 15.60 600 _____ _____ 15.00 750 _____ _____ 14.40 792 _____ _____ 13.80 837 _____ _____ 13.20 864 _____ _____ 12.60 900 _____ _____ (a) Compute the oligopolist’s total revenue at each of the nine prices, and enter these figures in the table. Also compute marginal revenue for each unit between the nine prices and enter these figures in the table. (1 point) (b) Where is the “kink” in the demand curve? What is the current selling price at that kink and how much output will be demanded? (1 point) (c) What is the range of marginal cost that will keep the price set at the kink? (1 point) 3. Why do monopolistically competitive firms spend funds for product differentiation and advertising when this practice only adds to the firm’s costs? (2 points)...
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