Question

4. Suppose Chipco produces memory chips for hand-held devices such as tablets and phones. Total costs in the short-run can be described with the following formula:

TC = 300 + 5Q + 0.1(Q2)

where Q is the number of chips produced per week and TC is the total cost of chips.

5. Refer to question 4, referring to Chipco. Now suppose Chipco has a patent that allows it to hold a monopoly position in the making of these chips. Demand for the chips is below: Now suppose Chipco has a patent that allows it to hold a monopoly position in the making of these chips. Demand for the chips is below:

 P q 120 0 115 10 110 20 105 30 100 40 95 50 90 60 85 70 80 80 75 90 70 100 65 110

a.            What is the profit-maximizing price and quantity of chips? What is the profit?

b.            Use a graph to show the general situation, including profit-maximizing quantity and price, and the profit box.

c.            Disregard a and b. Suppose there are six drug firms producing a transplant anti-rejection drug . Sales of each firm are 30m, 25m, 22m, 10m, 8m, and 5m. Calculate the 4-firm concentration ratio and Herfindahl index for this industry. If the second and third largest firms merge, what is the new CR4 and H? If the increase in H is greater than 100 and the post-merger H is greater than 2500, the merger is likely to be challenged by the FTC. Will the challenge likely occur?

d.            Suppose drugs that treat blood disorders can be altered to perform a similar anti-rejection function for transplants. How might that affect our final answer for part c? Explain.

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