Problem Set 8 - Econ. 221 Key to Practice Problem Set 8...

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Econ. 221 Key to Practice Problem Set 8 (Chapter 12) 1. Revenue Maximization and Elasticity Use the table below to answer the following: Total Marginal Quantity Price Revenue Revenue 1 35 35 35 2 32 64 29 3 29 87 23 4 26 104 17 5 23 115 11 6 20 120 5 7 17 119 -1 8 14 112 -7 9 11 99 -13 10 8 80 -19 b. If the firm wants to maximize its revenue, how many units of its product should it sell and at what price? P = $20; Q = 6 c. Over what range of the demand curve is demand price elastic? Between P =$35 and P=$20 d. Over what range of the demand curve is demand price inelastic? Between P =$17 and P=$8 e. Can you identify the profit maximizing output level? No, we do not have information on MC. 2. What is the excess capacity theorem? How does it affect consumer utility? Answer: See Study Supplement, page 79 3. Are economists concerned about the welfare loss from monopolistic competition? Explain your answer. Answer:
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This note was uploaded on 05/10/2010 for the course ECON 221 taught by Professor Ramoo during the Spring '10 term at Diablo Valley College.

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Problem Set 8 - Econ. 221 Key to Practice Problem Set 8...

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