Chapter%209%20Answers

Chapter%209%20Answers - c If MC=30 profit maximizing...

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Chapter 9 I. Multiple-choice Questions 1. C 2. A 3. C 4. D 5. B 6. A 7. C 8. D 9. C 10. C 11. C 12. D 13. A 14. C 15. C 16. C 17. A 18. D 19. D 20. D 21. D 22. C 23. D 24. A 25. B 26. A 27. B 28. C 29. D 30. D II. Short-answer Questions: 1. a) From the graph, we can find out that the demand curve is represented by P = 70 – Q. Hence the marginal revenue curve is represented by MR = 70 – 2Q. (In general, if the demand curve is P = a + bQ then the MR curve will be P = a + 2bQ). In this case, when Q=30, MR=70-2*30 = 10. When Q=50, MR = 70-2*50 = -30. b) the MR curve has same vertical intercept as the demand curve but has a horizontal intercept half as much as the demand curve. The slope of the marginal revenue curve = 2*the slope of the demand curve = 2.
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Unformatted text preview: c) If MC=30, profit maximizing quantity Q* must satisfy MR = MC = 30. Since MR = 70-2Q, we must have 70-2Q* = 30 Hence, Q* = 20. d) To sell 20 units, the firm needs to set the price to be P* = 70 – Q* = 70 – 20 = $50. Profit at this quantity = (P-ATC)*Q = (50-60)*20 = -$200. This firm is taking an economic loss of $20. 2. a) & (b) the marginal revenue are: $60, $48, $36, $24, $12, 0, -$12, -$24. The optimal quantity is 5. To sell 5 units, the bookstore should charge a price of $36. c) The economic profit = ($36-$12)*5 = $120. d) The socially efficient number should be at least 8 since the 8 th person still has a reservation price higher than the marginal cost....
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Chapter%209%20Answers - c If MC=30 profit maximizing...

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