Chap15 - 15 ProblemsandApplications 1. Price $100 90 80 70...

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Problems and Applications 1. The following table shows revenue, costs, and profits, where quantities are in thousands, and  total revenue, total cost, and profit are in millions of dollars: Price Quantity (1,000s) Total  Revenue Marginal  Revenue Total  Cost Profit $100 0 $0 ---- $2 $-2 90 100 9 $9 3 6 80 200 16 7 4 12 70 300 21 5 5 16 60 400 24 3 6 18 50 500 25 1 7 18 40 600 24 -1 8 16 30 700 21 -3 9 12 20 800 16 -5 10 6 10 900 9 -7 11 -2 0 1,000 0 -9 12 -12 a. A profit-maximizing publisher would choose a quantity of 400,000 at a price of $60 or a  quantity of 500,000 at a price of $50; both combinations would lead to profits of $18  million. b. Marginal revenue is always less than price. Price falls when quantity rises because the  demand curve slopes downward, but marginal revenue falls even more than price  because the firm loses revenue on all the units of the good sold when it lowers the price. c. Figure 2 shows the marginal-revenue, marginal-cost, and demand curves. The marginal- revenue and marginal-cost curves cross between quantities of 400,000 and 500,000.  This signifies that the firm maximizes profits in that region. 33 MONOPOLY 15
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34   Chapter 15/Monopoly Figure 2 d. The area of deadweight loss is marked “DWL” in the figure. Deadweight loss means that  the total surplus in the economy is less than it would be if the market were competitive, 
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This note was uploaded on 10/13/2010 for the course ECON 200 taught by Professor Levendis during the Fall '07 term at Loyola New Orleans.

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Chap15 - 15 ProblemsandApplications 1. Price $100 90 80 70...

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