Chapter 14,15 HW - Universidad Iberoamericana UNIBE BBA in...

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Universidad Iberoamericana UNIBE BBA in International Business Microeconomics Professor Osvaldo Lagares Homework Chapter 14-15 Valerie Bodden Kluge (10-0014) Maria Gabriella Liriano (09-0881) Joaquin Castillo (10-0085) November 23, 2010 Santo Domingo, Dominican Republic
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CHAPTER 14 Exercises: 3.3, 4.4, 5.4, 5.5, 5.7, 5.12, 5.13 3.3) Ed Scahill has acquired a monopoly on the production of baseballs, (don’t ask how) and faces the demand and cost situation shown in the following table. a. Fill in the remaining values in the table Price Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost 20 15,000 300,000 330,000 19 20,000 380,000 16 3650,000 7 18 25,000 450,000 14 405,000 8 17 30,000 510,000 12 450,000 9 16 35,000 560,000 10 500,000 10 15 40,000 600,000 8 555,000 11 b. If Ed wants to maximize profits, what price should he charge, and how many baseballs should he sell? How much profit will he make? He should charge $16 and produce 35,000 baseballs per week; then his profits would be $60,000 c. Suppose the government imposes a tax of $50,000 per week on baseball production. Now what price should Ed charge, how many baseballs should he sell, and what will his profits be? Tax does not really affect his marginal cost/revenue, therefore he should not alter what he charges or produces. His profit on the other hand, will fall to $10,000. 4.4) Economist Harvey Leibenstein argued that the loss of economic efficiency in industries that are not perfectly competitive has been understated. He argued that when competition is weak, firms are under less pressure to adopt the best techniques or to hold down their costs. He referred to this effect as “x-inefficiency”. If x-inefficiency causes a firm’s marginal costs to rise, show that the deadweight loss in Figure 14-5 understates the true deadweight loss caused by a monopoly. The marginal cost is going to fall from MC 1 to MC 2 as shown in the picture. If the monopoly has higher costs then the deadweight loss would increase. The dark area is the original deadweight loss but then the lighter area is the addition to the original
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deadweight loss if one considers that the company is not producing in an efficient manner. 5.4) Use the graph on pg.489 for a monopoly to answer the questions. a. What quantity will the monopoly produce, and what price will the monopoly charge? The monopoly would produce 50 unites for $10 each. b. Suppose the monopoly is regulated. If the regulatory agency wants to achieve economic efficiency, what price should it require the monopoly to charge? How much outputs will the monopoly produce at this price? Will the monopoly make a profit if it charges this price? Briefly explain . The agency should make the monopoly charge where MC is equal to MR, which is $7.00, producing 90 units. Yes, the monopoly would produce profit because it is still above the ATC. 5.5)
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This note was uploaded on 08/09/2011 for the course ECONOMICS --- taught by Professor --- during the Spring '11 term at Universidad Iberoamericana.

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Chapter 14,15 HW - Universidad Iberoamericana UNIBE BBA in...

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