Question

2. You have been hired to do some consulting for Fishy Joe’s, a profit-maximizing monopolistic competitor selling “popplers”. You have estimated the firm’s demand, marginal revenue, and marginal cost curves to be, respectively, P = 100 − 2Q, MR = 100 − 4Q, and MC = 20 + Q, where quantity Q is measured in servings and prices are measured in dollars per serving. Currently, the firm is producing where

• Price = $50/serving

• Average Total Cost = $38/serving

(a) Is the firm currently maximizing profits? If not, what should it do to maximize profits?

(b) Based on your answer to the above question, all else equal, in the long-run will the firm i. produce more output, less output, or the same level of output? ii. earn higher or lower profits?

Answer #1

Given the following information for a monopolistic
competitor:
Demand: P = 68 – 7(Q)
Marginal revenue: MR = 68 – 14(Q)
Marginal cost: MC = 2(Q) + 8
Average total cost at equilibrium is 22
1. At what output (Q) will this firm maximize
profit?
2. At what price (P) will this firm maximize
profit?
3. What is the total revenue (TR) earned at this output
level?
4. What is the total cost (TC) accrued at this
output?
5. What...

Brucely Brothers' short-run cost curve is: C = (2q^2/K)+10K,
where q is the number of outputs produced and K is the number of
robot hours they hire. Currently, they hire 40 robot hours per
period. The short-run marginal cost curve is: MC = 4q/K (i) If
Brucely Brothers receive $8 for every unit of output they produce,
what is their profit maximizing output level? (ii) Calculate their
profits. Should they shut down in the short-run? Explain why.

A monopolist faces a demand curve P= 24 – 2Q, where P is
measured in dollars per unit and Q in thousands of units and MR=24
– 4Q. The monopolist has a constant average cost of $4 per unit and
Marginal cost of $4 per unit. a. Draw the average and marginal
revenue curves and the average and marginal cost curves on a graph.
b. What are the monopolist’s profits-maximizing price and quantity?
c. What is the resulting profit? Calculate...

Use the following
information to answer questions 2-4.
Assume there are only two producers of tennis rackets: Wilson and
Prince. The market demand for tennis rackets is depicted by the
algebraic formula P = 100 - Q, where P stands for price and Q
stands for quantity of rackets. If the market were monopolized, the
resulting formula for the monopolist's marginal revenue would be MR
= 100 - 2Q, where MR stands for marginal revenue. Assume that both
producers face...

Assume that consumers view tax preparation services as
undifferentiated among producers, and that there are hundreds of
companies offering tax preparation in a given market. The current
market equilibrium price is $120. Jojo’s Tax Service has a daily,
short-run total cost given by TC = 100 + 4Q2. Answer the
following questions:
How many tax returns should Jojo prepare each day if her goal is
to maximize profits?
How much will she earn in profit each day?
A perfectly competitive...

Assume that consumers view tax preparation services as
undifferentiated among producers, and that there are hundreds of
companies offering tax preparation in a given market. The current
market equilibrium price is $120. Jojo’s Tax Service has a daily,
short-run total cost given by TC = 100 + 4Q2. Answer the
following questions:
How many tax returns should Jojo prepare each day if her goal is
to maximize profits?
How much will she earn in profit each day?
A perfectly competitive...

Nimbus, Inc. makes brooms and then sells them door-to-door. The
table below demonstrates the relationship between the number of
workers and Nimbus’s output in a given day. The firm experiences
fixed costs of $200, and its variable cost (workers) is $100 per
worker per day. The broom industry is perfectly competitive.
Fill in the table below:
Number of Workers
Brooms
(Total
Output)
Q
Marginal Product
MP
Fixed
Cost
FC
Variable Cost
VC
Total Cost
TC
Avg Fixed Cost
AFC
Avg...

You manage pricing at a small industrial parts manufacturer that
competes with over one hundred other similar manufacturing
companies. Each company’s products, including your 213B product,
are somewhat differentiated because of the variation in quality and
service provided by each company, and no single competitor
dominates the market. Given your competitors’ current prices for
similar products, the demand for your product number 213B is given
by P=50-.02Q, where P is the price you charge per unit of this
product and...

19. To maximize profits, a single-price monopolist will produce
where Marginal costs = Marginal revenue: establishing a price that
is greater than their marginal cost.
True
False
20. As a consequence of the perfectly competitive firm producing
the quantity of output at which: price equals marginal revenue and
marginal cost, it will achieve "allocative efficiency" in the
deployment of societies scarce resources.
True
False
21. In the "long-run," the perfect competitive achieves
technical efficiency and the firm will produce at:...

Briefly state the basic characteristics of pure competition,
pure monopoly, monopolistic competition, and oligopoly. Under which
of these market classifications does each of the following most
accurately fit? (a) a supermarket in your hometown; (b) the steel
industry; (c) a Kansas wheat farm; (d) the commercial bank in which
you or your family has an account; (e) the automobile industry. In
each case justify your classification.
“Even if a firm is losing money, it may be better to stay in...

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