a. In the textbook, The Applied Theory of Price, D. N. McCloskey refers to the equation MR 5 MC as the rule of rational life. Who follows this rule: monopolies, competitive firms, or both?
b. Rapido, the shoe company, is so popular that it has monopoly power. It’s selling 20 million shoes per year, and it’s highly profitable. The marginal cost of making extra shoes is quite low, and it doesn’t change much if they produce more shoes. Rapido’s marketing experts tell the CEO of Rapido that if it decreased prices by 20%, it would sell so many more shoes that profits would rise. If the expert is correct, at its current output, is MC > MR, is MC = MR, or is MR > MC?
c. If Rapido’s CEO follows the experts’ advice, what will this do to marginal revenue: Will it rise, fall, or will it be unchanged? Will Rapido’s total revenue rise, fall, or be unchanged?
d. Apollo, another highly profitable shoe company, also has market power. It’s selling 15 million shoes per year, and it faces marginal costs quite similar to Rapido. Apollo’s marketing experts conclude that if they increased prices by 20%, profits would rise. For Apollo, is MC > MR, is MC = MR, or is MR > MC?