PS_CH10 - ECON 2296 - Practice Questions Chapter 10 1....

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ECON 2296 - Practice Questions Chapter 10 1. Prove that marginal revenue (MR) has the same vertical intercept and twice the slope of a linear demand curve. 2. Prove that MR = P(1 + 1/E d ) where E d = price elasticity of demand. 3. A monopoly is currently producing an output and charging a price such that the price elasticity of demand for its product is -.5. a) What is the monopoly's marginal revenue equal to? b) Can the firm be maximizing profits? Explain. 4. Why would a firm wish to distinguish its product as much as possible from its competitors? Explain using the pricing rule of thumb and Lerner's Degree of Monopoly Power. 5. How does a natural monopoly differ from a regular monopoly? Explain. 6. A monopoly faces market demand of Q = 5000 - 200P and has total costs of C = Q 2 /200 + 5Q. a) What is the monopoly's marginal revenue function? b) Why is the monopoly's marginal revenue different from the demand and average revenue? Explain. c) How much output would the monopoly produce? d) What price would the monopoly set? e) What would the monopoly's profit be? f) Suppose an excise tax of $1 per unit was imposed on the monopoly. How much output would the monopoly now produce? What price would the monopoly set? What would the monopoly's profit be? 7. A monopoly operates two plants to produce its product. The demand for the product is Q T = 140 - P. The total cost at each plant is respectively C 1 = 2Q 1 2 and C 2 = 4Q 2 2 . a) What is the monopoly's marginal revenue function? b) What is the marginal cost at plant 1? What is the marginal cost at plant 2? What is the monopoly's total marginal cost? c) How much would the monopoly produce at plant 1? How much would the monopoly produce at plant 2? How much would the monopoly produce in total? 8. A monopoly operates two plants to produce its product. The total cost at each plant is respectively C 1 = Q 1 2 + 100 and C 2 = 2Q 2 2 + 20. The firm maximizes profit by producing a total of 100 units of output. Currently, the firm is producing 60 units of output at plant 1 (ie Q 1 = 60) and 40 units of output at plant 2 (ie Q 2 = 40).
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Is the firm maximizing profit? Explain. If no, what must the firm do to increase its profit? Explain using the information given. 9. Firms in a perfectly competitive industry are planning to form a cartel to monopolize
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PS_CH10 - ECON 2296 - Practice Questions Chapter 10 1....

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