Exam 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

You are the manager of a firm that has an exclusive license to produce your product.The inverse market demand curve is P = 900 - 1.5Q.Your cost function is C(Q)= 2Q + Q².Determine the output you should produce,the price you should charge,and your profits.

The first-order condition for a monopoly maximizing its profit is:

You are the manager of a monopoly that faces a demand curve described by P = 63 − 5Q.Your costs are C = 10 + 3Q.Your firm's maximum profits are:

Monsanto,the maker of Nutrasweet,owned the patent to aspartame,the official name of the sweetener.In 1987 Monsanto's patent expired in Europe,allowing other firms to produce aspartame under other brand names.What impact do you think this had on the market for aspartame and Monsanto's profits?

Economies of scale exist whenever:

A monopoly has two production plants with cost functions C₁ = 40 + 0.2Q₁² and C₂ = 50 + 0.1Q₂².The demand it faces is Q = 480 − 5P.What is the profit-maximizing price?

If a monopolist has an own price demand elasticity of −.8,is it maximizing profits?

You are the manager of a monopolistically competitive firm.The present demand curve you face is P = 100 - 4Q.Your cost function is C(Q)= 50 + 8.5Q². a.What level of output should you choose to maximize profits? b.What price should you charge? c.What will happen in your market in the long run?

You are the manager of a monopoly firm with (inverse)demand given by P = 50 − 0.5Q.Your firm's cost function is C = 40 + 5Q².Your firm's marginal revenue is:

In 1994 Pentium users around the world learned that their $4.00 pocket calculators could perform some operations more accurately than their $5,000 desktop computers.It took several months before Intel-the maker of the chip-agreed to offer its customers replacement chips.In contrast,Walmart guarantees satisfaction to all customers,with a "no questions asked" return policy on nearly all of the products it sells.Why do you think these firms employ such different consumer relations policies?

Regardless of the economic environment,every firm will maximize profits by operating at the minimum point of its average total cost curves.Is this statement true or false?

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 = 20 + 2Q². a.What are the firm's fixed costs? b.What is the firm's marginal cost? Now suppose other firms in the market sell the product at a price of $10. c.How much should this firm charge for the product? d.What is the optimal level of output to maximize profits? e.How much profit will be earned? f.In the long run,should this firm continue to operate or shut down? Why?

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?

You are the manager of a monopoly that faces a demand curve described by P = 85 − 5Q.Your costs are C = 20 + 5Q.The profit-maximizing price is:

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?

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Compute the marginal revenue when the price elasticity of demand is −0.25.

Consider a monopoly where the inverse demand for its product is given by P = 200 − 5Q.Based on this information,the marginal revenue function is:

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

Firms have market power in: