Exam 25: Factor Markets-Part A

A coal producer has a monopoly on coal.A different monopoly controls the railroad that takes the coal to market.Each monopolist chooses prices to maximize its profits.If the coal monopolist buys the railroad, then it will increase its profits by raising the market price of coal.

If a monopolist faces a competitive labor market, it will hire labor up to the point where the price of output times the marginal product of labor equals the wage rate.

Suppose that the demand curve for mineral water is given by p = 50 - 16q, where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer, who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit, the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do, the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is

Suppose that the demand curve for mineral water is given by p = 40 - 12q, where p is the price per bottle paid by consumers and q is the number of bottles purchased by consumers.Mineral water is supplied to consumers by a monopolistic distributor who buys from a monopolistic producer, who is able to produce mineral water at zero cost.The producer charges the distributor a price of c per bottle.Given his marginal cost of c per unit, the distributor chooses an output to maximize his own profits.Knowing that this is what the distributor will do, the producer sets his price c so as to maximize his revenue.The price paid by consumers under this arrangement is