HW13S_302 - Econ 302- Solution to Problem Set 13 Spring...

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Econ 302- Solution to Problem Set 13 Spring 2010-Ali Toossi Due: Wednesday May 5 at the beginning of the class Chapter 12: Questions for review Answer to question 2. Yes if the transportation costs of cement from the next town make the competing cement more expensive than the monopoly price of the local cement. Answer to question 4. On the inelastic portion of the curve, raising price will always increase revenue and (since output will be lower) it also lowers costs. Therefore the firm should always move up the demand curve to where it is not inelastic if profit maximization is a goal. Answer to question 8. The price-quantity pair that maximizes profits will also maximize the profits minus a lump sum tax. Such a tax is equivalent to any other fixed cost since it leaves the optimal price-quantity pair unaffected so the question is false. Chapter 12: Problems Answer to problem 1. 1) Increase output because MR > MC and P > AVC. 2) Reduce output because MR < MC (we know that MR < P and P = MC here).
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HW13S_302 - Econ 302- Solution to Problem Set 13 Spring...

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