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Exam 12: Managerial Decisions for Firms With Market Power

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Question 41

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Refer to the following: A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a total of 500 units of output in order to maximize profit. The firm is currently producing 200 units in the Michigan factory and 300 units in the Texas factory. At this allocation between plants, the last unit of output produced in Michigan added $5 to total cost, while the last unit of output produced in Texas added $3 to total cost. -If the firm produces 201 units in Michigan and 299 units in Texas instead:

A) total cost will decrease $2
B) profit will increase $2
C) total cost will decrease $3
D) both a and b
E) none of the above

F) A) and B)
G) A) and C)

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Question 42

Multiple Choice

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Refer to the following: A firm with market power faces the following estimated demand and average variable cost functions: $Q _ { d } = 39,000 - 500 P + 0.4 M - 8,000 P _ { R }$ $A V C = 30 - 0.005 Q + 0.0000005 Q ^ { 2 }$ where $Q _ { d }$ is quantity demanded, P is price, M is income, and $P _ { R }$ is the price of a related good. The firm expects income to be $40,000 and $P _ { R }$ to be $2. Total fixed cost is $100,000. -What is the profit-maximizing choice of output?

A) 8,000 units
B) 10,000 units
C) 12,000 units
D) 16,000 units
E) 0 units, the firm shuts down

F) A) and E)
G) A) and C)

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Question 43

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Refer to the following figure: The figure above shows the demand and cost curves facing a price-setting firm. -In profit-maximizing (or loss-minimizing) equilibrium, the Lerner index is _____, and the elasticity of demand is ______.

Refer to the following. A firm with two plants, A and B, has the following estimated demand and marginal cost functions: $\begin{array} { l } Q _ { d } = 120 - 10 P \\M C _ { A } = 4 + ( 1 / 5 ) Q _ { A } \\M C _ { B } = 6 + ( 1 / 10 ) Q _ { B }\end{array}$ -What is the firm's marginal revenue function?

Refer to the following table that gives the demand facing a monopolist: $\begin{array} { c c } \text { Price } & \text { Quartity } \\\hline \$ 20 & 20 \\15 & 40 \\10 & 55 \\5 & 70\end{array}$ -How much does the 28th unit of output add to total revenue?

Refer to the following figure: The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm manufactures dishwashers in two plants. MC₁ and MC₂ are the marginal cost curves for those two plants. -What price should the firm set?

A monopolistic competitor is producing a level of output at which price is $200, marginal revenue is $100, average total cost is $210, marginal cost is $100, and average variable cost is $180. In order to maximize profit, the firm should

A monopolist which suffers losses in the short run will

If firms in a monopolistically competitive industry are making an economic profit,

Which of the following would indicate a relatively large amount of market power?

All of the following could be a barrier to entry EXCEPT:

Refer to the following: The market demand for a monopoly firm is estimated to be: $Q _ { d } = 100,000 - 500 P + 2 M + 5000 P _ { R }$ where $Q _ { d }$ is quantity demanded, P is price, M is income, and $P _ { R }$ is the price of a related good. The manager has forecasted the values of M and $P _ { R }$ will be $50,000 and $20, respectively, in 2015. The average variable cost function is estimated to be $A V C = 520 - 0.03 Q + 0.000001 Q ^ { 2 }$ Total fixed cost in 2015 is expected to be $4 million. -The manager should ________________ because_____________.

Refer to the following figure: The figure above shows the demand and cost curves facing a price-setting firm. -The profit-maximizing (or loss-minimizing) level of output is

Refer to the following figure: The above graph shows the demand and cost conditions facing a price-setting firm. -What is the maximum amount of profit the firm can earn?

A monopoly is producing a level of output at which price is $80, marginal revenue is $40, average total cost is $100, marginal cost is $40, and average fixed cost is $10. In order to maximize profit, the firm should

Refer to the following: The market demand for a monopoly firm is estimated to be: $Q _ { d } = 100,000 - 500 P + 2 M + 5000 P _ { R }$ where $Q _ { d }$ is quantity demanded, P is price, M is income, and $P _ { R }$ is the price of a related good. The manager has forecasted the values of M and $P _ { R }$ will be $50,000 and $20, respectively, in 2015. -For 2015, the inverse demand function is

Involve a profit-maximizing monopolist. Using time-series data, the demand function for the monopolist has been estimated as $Q _ { d } = 142,000 - 500 P + 6 M - 400 P _ { R }$ where $Q _ { d }$ is the amount sold, P is price, M is income, and $P _ { R }$ is the price of a related good. The estimated values for M and $P _ { R }$ in 2012 are $25,000 and $200, respectively. The short-run marginal cost curve for this firm has been estimated as: $M C = 200 - 0.024 Q + 0.000006 Q ^ { 2 }$ Total fixed cost is forecast to be $500,000 in 2015. -The firm's forecasted profit (loss) in 2015 is a

If a monopolist is producing a level of output at which demand is inelastic, then

Refer to the following table showing a monopolist's demand schedule: $\begin{array} { c c } \text { Price } & \text { Quantity } \\\hline \$ 50 & \mathbf { 3 0 0 } \\40 & \mathbf { 6 0 0 } \\20 & \mathbf { 8 0 0 } \\10 & 1,000\end{array}$ -What is marginal revenue for a price decrease from $50 to $40?

Monopolistic competition is similar to perfect competition in that: