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Chapter 8 Econ

This document contains examples of market structures and scenarios involving managers making production and pricing decisions. It includes examples of perfect competition, monopoly, monopolistic competition, and scenarios involving cost curves, demand curves, marginal revenue, and profit maximization. The document tests understanding of key economic concepts related to firm behavior under different market structures.

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839 views

Chapter 8 Econ

This document contains examples of market structures and scenarios involving managers making production and pricing decisions. It includes examples of perfect competition, monopoly, monopolistic competition, and scenarios involving cost curves, demand curves, marginal revenue, and profit maximization. The document tests understanding of key economic concepts related to firm behavior under different market structures.

Uploaded by

deeznuts
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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2. You are the manager of a firm that sells its product in a competitive market at a price of $60.

Your firm’s cost function is C=60 + 2Q^2. Your firm’s maximum profits are: $390

3. You are a manager in a perfectly competitive market. The price in your market is $35. Your
total cost curve is C(Q) = 20 + 5Q + .5Q2. What level of output should you produce in the short
run? 33

4. You are the manager of a firm that has an exclusive license to produce your product. The
inverse market demand curve is P = 1800 - 1.5Q. Your cost function is C(Q)=2Q+Q2.

Determine the output you should produce, the price you should charge, and your profits.

$92,303.60

5. Beta Industries manufactures floppy disks that consumers perceive as identical to those
produced by numerous other manufacturers. Recently, Beta hired an econometrician to estimate
its cost function for producing boxes of one dozen floppy disks. The estimated cost function is C
= 10 + Q2. Now suppose other firms in the market sell the product at a price of $5. How much
should this firm charge for the product? $5

6. Which of the following market structures would you expect to yield the greatest product
variety? Monopolistic Competition.

7. You are a monopolist with the following cost and demand conditions: P=100-2Q and
C(Q)=50+Q^2. Determine the profit -maximizing output and price.

Q=16 2/3; P=$66 2/3

8. You are a manager in a perfectly competitive market. The price in your market is $35. Your
total cost curve is C(Q) = 20 + 5Q + .5Q2. What price should you charge in the short run? 35

9. A perfectly competitive firm faces a: perfectly elastic demand function

10. Price in competition market is 6. The firms marginal cost is 4 and the marginal cost curve has
the normal shape. What would you advise the firm to do? Increase its output

11. A monopsony is a market with one buyer

13. For a monopolist to earn an economic profit in the long run, which of the following must
happen? There are barriers to entry

14. A firm can produce two products with the cost function C(Q1, Q2) = 10 + 5Q1 + 5Q2 -
0.2Q1Q2. The firm enjoys: cost complementary

15. Differentiated goods are NOT a feature of a: perfectly competitive market and monopolistic
market
16. Advertising adds cost to producing a good. Therefore, it increases the average total cost of
production

17. In a market there are many firms selling differentiated products. The product is: a
monopolistically competitive market

18. A profit-maximizing monopolist will: produce an output level at which P>MC

19. Economies of scale exist whenever: average total costs decline as output increases

20. If a firm is producing at an output level at which: price exceeds average total costs then the
firm is earning an economic profit

21. Which of the following formulas correctly measures the profit of a monopoly?

π= TR - TC andπ = (P - ATC)Q

22. You are a monopolist with the following cost and demand conditions: P = 100 - 2Q and C(Q)
= 50 + Q2. Determine the actual amount of deadweight loss. $138.86

23. Which of the following are examples of price discrimination?

iii peak and off-peak train fares

iv a doctor charging wealthier higher consultancy fees

24. In a competitive market, which of the following is the firms supply curve? The marginal cost
curve

25. You are a manager in a perfectly competitive market. The price in your market is $35. Your
total cost curve is C(Q) = 20 + 5Q + .5Q2. Will you make any profits in the short run? $534.50

26. Beta industries manufactures floppy disks that a consumer perceive as identical to those
produced by numerous other manufactures. Recently, Beta hired an econometrician to
estimate its cost function for producing boxes of one dozen floppy disks. The estimated cost
function is C= 10+Q^2. What is the optimal level of output to maximize profits?

Ans. 5 units Solution: C= 10+2Q > 2Q=10 > 5


27. The model of monopolistic competition has been criticized because of excess capacity. This
implies that:

Ans. These are barriers to entry*

28. Which of the ff. industries is best characterized as monopolistically competitive?


Ans. Toothpaste
29. Suppose you are monopolist operating two plants at different locations. Both plants produce
the same product; Q1 is the quantity produced at plant 1, and Q2 is the quantity produced at
plant 2. You are the ff. inverse demand function: P=1000-2Q, where:
C1= 25+2Q2/1; C2= 20+ 2Q2/2. What are your marginal revenue and marginal cost
functions?
Ans. MR= 1000-4Q
MC1= 4Q; MC2= 8Q
30. You are a manager for a monopolistically competitive firm. From experience, the profit-
maximizing level of output of your firm is 100 units. However, it is expected that prices of
other close substitutes will fall in the near future. How should you adjust your level of
production in response to this change?
Ans. Produce less than 100 units
31. A natural monopoly may be beneficial to the consumer because
Ans. The company can obtain economies of scale
32. Which one of the ff. would act as barrier to entry to a new form trying to enter a market?
Ans. Branding
33. Firms have market power in:
Ans. Monopolistic Market
34. Which of the following is an artificial barrier to entry? Ans. Government issue of patents
35. In order to maximize profits (or minimize losses) a firm should produce at that output level in
which
Ans. Marginal revenue= marginal cost
36. In a perfectly competitive market
Ans. There are so many firms selling output in the market that no one individual
firm has the ability to control the market price.
37. Which of the ff. is not a condition of monopolistic competition?
Ans. Indefinitely inelastic demand curve*
38. All the following are requirements of perfectly competitive market except:
Ans. Selling firms maximize sales
39. A monopoly has produced a product with a patent for the last few years. The patent is going
to expire. What will happen after the patent expires?
Ans. Some firms will enter the industry
40. Which of the ff. is incompatible with perfect competition?
Ans. Marginal cost= average price
41. Beta industries manufactures floppy disks that a consumer perceive as identical to those
produced by numerous other manufactures. Recently, Beta hired an econometrician to
estimate its cost function for producing boxes of one dozen floppy disks. The estimated cost
function is C= 10+Q^2. What is the firm’s marginal cost?
Ans. 2Q
42. Compute the marginal revenue when the price elasticity of demand is -0.20.
Ans. -4P, meaning marginal revenue is negative and 4 times greater than price
43. Suppose you are monopolist operating two plants at different locations. Both plants produce
the same product; Q1 is the quantity produced at plant 1, and Q2 is the quantity produced at
plant 2. You are the ff. inverse demand function: P=1000-2Q, where: C1= 25+2Q2/1; C2=
20+ 2Q2/2. What are the maximum profits?
Ans. 31,250
44. One of sources of monopoly power for a monopoly may be:
Ans. Patents
45. The top four firms in the industry have 10 percent, 8 percent, 8 percent and 6 percent of the
market. The four-firm concentration ratio of this market is: Ans. 32
46. Suppose the marginal costs, and therefore the market supply, for ketchup in Laguna is given
by P=Q/2+1. The market demand is given by Q=20-4P. If there is monopoly in the ketchup
market the price and the quantity produced is:
Ans. P= 11/3, Q=4
47. Suppose you are monopolist operating two plants at different locations. Both plants produce
the same product; Q1 is the quantity produced at plant 1, and Q2 is the quantity produced at
plant 2. You are the ff. inverse demand function: P=1000-2Q, where:
C1= 25+2Q2/1; C2= 20+ 2Q2/2. To maximize profits, how mych should you produce at
plant 1? At plant 2?
Ans. 62.5;125
48. You are a manager in a perfectly competitive market. The price in your market is $14.
Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What will happen in the long-run if there
is no change in the demand curve? Ans. Some firms will enter the market eventually
49. Seaside industries currently spends 5 percent of its sales on advertising, suppose that the
elasticity of advertising for seaside is 0.5. Determine the optimal profit margin over price
(P-MC)/P.
Ans. 10 percent

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