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business
microeconomics

Questions and Answers of Microeconomics

==+b. How would your answer to (a) change if the demands for the computer and the microprocessors were competitive; i.e., if some of the people who buy the microprocessors use them to make climate
==+Assuming that demand for the microprocessor is unrelated to the demand for the Ajax computer, what transfer price should Ajax apply to the microprocessor for its use by the downstream computer
==+a. Suppose an outside market for the microprocessor develops and that Ajax has monopoly power in that market, selling microprocessors for $1000 each.
==+The microprocessor is produced at a constant marginal cost of $500, and the marginal cost of assembling the computer (including the cost of the other parts)by the downstream division is a
==+3. Ajax Computer makes a computer for climate control in office buildings. The company uses a microprocessor produced by its upstream division, along with other parts bought in outside
==+The downstream division?
==+ In which case does the upstream division earn the most?
==+ In which case does Race Car Motors earn the most profit?
==+ (b) there is a competitive market for engines in which the market price is$6000; and (c) the firm is a monopoly supplier of engines to an outside market.
==+ (a) there is no outside market for engines;
==+2. Review the numerical example about Race Car Motors. Calculate the profit earned by the upstream division, the downstream division, and the firm as a whole in each of the three cases examined:
==+b. Suppose Boeing were to acquire GE’s engine division, so that now the engines and airplanes are made by a single company. Now what price will the company charge for its airplanes?
==+ Given that price of engines, what price will Boeing charge for its airplanes?
==+a. What is Boeing’s profit-maximizing price of airplanes, given a price PE for the engines? What is the profit-maximizing price that GE will charge for each set of engines?
==+marginal cost to GE of producing a set of engines is 20 (million dollars). In addition to paying for engines, Boeing incurs a marginal cost of 100 (million dollars)per plane.
==+Where Q is airplanes sold per month and P is the price in millions of dollars. The airplane uses a set of engines made by General Electric, and Boeing pays GE a price PE (in millions of dollars)
==+1. Suppose Boeing faces the following demand curve for the monthly sales of its 787 aircraft:Q = 120 - 0.5p
==+b. Calculate the Lerner index, L = (P - MC)>P, for this firm at its profit-maximizing levels of A, Q, and P.
==+17. Consider a firm with monopoly power that faces the demand curve P = 100 - 3Q + 4A1>2 and has the total cost function C = 4Q2 + 10Q + A where A is the level of advertising expenditures, and P
==+c. The company’s vice president has said: “Because the marginal cost of providing an additional channel is zero, mixed bundling offers no advantage over pure bundling. Our profits would be
==+b. Note that as drawn in the figure, the reservation prices for the Sports Channel and the Movie Channel are negatively correlated. Why would you, or why would you not, expect consumers’
==+The graph is divided into regions I, II, III, and IV.
==+company’s service area. These reservation prices are plotted (as x’s) in Figure 11.21, as are the prices P1, P2, and PB that the cable company is currently charging.
==+company’s marginal cost for these additional services is zero. Through market research, the cable company has estimated the reservation prices for these two services for a representative group
==+basic service can subscribe to these additional services individually at the monthly prices P1 and P2, respectively, or they can buy the two as a bundle for the price PB, where PB 6 P1 + P2. They
==+16. A cable TV company offers, in addition to its basic service, two products: a Sports Channel (Product 1)and a Movie Channel (Product 2). Subscribers to the
==+b. Now suppose that the production of each good entails a marginal cost of $30. How does this information change your answers to (a)? Why is the optimal strategy now different?
==+15. Your firm produces two products, the demands for which are independent. Both products are produced at zero marginal cost. You face four consumers (or groups of consumers) with the following
==+ever larger IBM revenues and profits, says Morgan Stanley’s Ulric Weil in his new book, Information Systems in the 80’s. Mr. Weil declares that IBM cannot revert to an emphasis on leasing.
==+life more difficult for IBM’s major competitors.Outright purchases of computers are needed for
==+small and medium-sized computers. The article said:IBM probably has no choice but to cut prices periodically to get its customers to purchase more and lease less. If they succeed, this could make
==+13. Some years ago, an article appeared in the New York Times about IBM’s pricing policy. The previous day, IBM had announced major price cuts on most of its
==+12. Look again at Figure 11.17 (p. 438). Suppose that the marginal costs c1 and c2 were zero. Show that in
==+Assuming that marginal production cost is zero for both goods, can the producer make the most money by selling the goods separately, by using pure bundling, or by using mixed bundling? What
==+11. Look again at Figure 11.12 (p. 434), which shows the reservation prices of three consumers for two goods.
==+all of whom are serious players. You believe there are now 3000 serious players and 1000 occasional players. Would it still be profitable to cater to the occasional player?
==+c. Suppose that over the years, young, upwardly mobile professionals move to your community,
==+Is your friend right? What annual dues and court fees would maximize weekly profits? What would these profits be?
==+b. A friend tells you that you could make greater profits by encouraging both types of players to join.
==+a. Suppose that to maintain a “professional” atmosphere, you want to limit membership to serious players. How should you set the annual membership dues and court fees (assume 52 weeks per
==+Assume that there are 1000 players of each type. Because you have plenty of courts, the marginal cost of court time is zero. You have fixed costs of $10,000 per week. Serious and occasional
==+where Q1 is court hours per week and P is the fee per hour for each individual player. There are also “occasional” players with demand Q2 = 4 - 0.25P*
==+10. As the owner of the only tennis club in an isolated wealthy community, you must decide on membership dues and fees for court time. There are two types of tennis players. “Serious” players
==+equal number—10 businesses and 10 academic institutions. Each business customer has the demand function Q = 10 - P, where Q is in millions of seconds per month; each academic institution has
==+rental payment per time period in exchange for the right to unlimited computing at a rate of P cents per second. SC has two types of potential customers of
==+New York or Los Angeles can receive Sal’s broadcasts by subscribing in either city. Thus Sal can charge only a single price. What price should he charge, and what quantities will he sell in New
==+b. As a consequence of a new satellite that the Pentagon recently deployed, people in Los Angeles receive Sal’s New York broadcasts and people in New York receive Sal’s Los Angeles broadcasts.
==+where Q is in thousands of subscriptions per year and P is the subscription price per year. The cost of providing Q units of service is given by C = 1000 + 40Q where Q = QNY + QLA.
==+• A two-part tariff: Pay an annual membership fee (e.g., $40) and then pay a small fee for the daily rental of each film (e.g., $2 per film per day).
==+7. Many retail video stores offer two alternative plans for renting films:
==+d. What would EA’s profit be for each flight? Would the airline stay in business?
==+Graph each of these demand curves and their horizontal sum. What price does EA charge the students? What price does it charge other customers?
==+c. Wait! EA finds out that two different types of people fly to Honolulu. Type A consists of business people with a demand of QA = 260 - 0.4P.Type B consists of students whose total demand is QB
==+average cost curve when fixed costs are $30,000, and EA’s average cost curve when fixed costs are$41,000.
==+b. EA learns that the fixed costs per flight are in fact$41,000 instead of $30,000. Will the airline stay in business for long? Illustrate your answer using a graph of the demand curve that EA
==+What is EA’s profit for each flight?
==+ How many people will be on each flight?
==+a. What is the profit-maximizing price that EA will charge?
==+6. Elizabeth Airlines (EA) flies only one route: Chicago–Honolulu. The demand for each flight is Q = 500 - P.EA’s cost of running each flight is $30,000 plus $100 per passenger.
==+5. A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are P1 = 15 - Q1 MR1 = 15
==+ What should the total profit be?
==+a. What quantity of BMWs should the firm sell in each market, and what should the price be in each market?
==+4. Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities
==+b. Does prohibiting the use of coupons make German producers better off or worse off?
==+3. In Example 11.1 (page 422), we saw how producers of processed foods and related consumer goods use coupons as a means of price discrimination. Although coupons are widely used in the United
==+a. Requiring airline travelers to spend at least one Saturday night away from home to qualify for a low fare.
==+Why might a firm want to practice tying?
==+13. How does tying differ from bundling?
==+Are senior citizens more likely to be offered discount prices for dental exams or for eye exams? Why?
==+10. In the town of Woodland, California, there are many dentists but only one eye doctor.
==+output if the demand curve for one group of consumers shifts outward, causing marginal revenue for that group to increase.
==+explain how a firm should change its prices and total
==+4. Give some examples of third-degree price discrimination. Can third-degree price discrimination be effective if the different groups of consumers have different levels of demand but the same
==+Why might this improve consumer welfare?
==+3. Electric utilities often practice second-degree price discrimination.
==+How does the ability to discriminate correctly affect his or her earnings?
==+2. How does a car salesperson practice price discrimination?
==+what will its total output be?
==+ What is the lowest price it will charge,
==+ Determine Uber’s profit and the deadweight loss during surge hours, and show them on the graph.
==+c. Draw a graph showing the demand, marginal revenue, and marginal cost curves during surge hours from part (b), indicating the profit-maximizing price and quantity.
==+b. Determine the profit-maximizing price during weekdays and during surge hours if MC = 10 instead of zero.
==+a. Determine the profit-maximizing price during weekdays and during surge hours.
==+However, during weekend nights, or surge hours, the demand for rides increases dramatically and the new demand curve is: P = 100 - Q. Assume that marginal cost is zero.
==+19. In some cities, Uber has a monopoly on ride-sharing services. In one town, the demand curve on weekdays is given by the following equation: P = 50 - Q.
==+ What will its profit be?
==+How much will the monopolist produce?
==+18. A monopolist faces the following demand curve:Q = 144>P2 where Q is the quantity demanded and P is price. Its average variable cost is AVC = Q1>2 and its fixed cost is 5.
==+end of each year. The CEO of the company claims that because all of the profits will be given back to the citizens, it makes economic sense to charge a monopoly price for electricity. True or
==+17. A certain town in the Midwest obtains all of its electricity from one company, Northstar Electric. Although the company is a monopoly, it is owned by the citizens of the town, all of whom
==+Why can you be sure that no household will choose instead to refuse the payment and go without electricity?
==+then a per-unit charge for electricity. Then LWE can break even while charging the price calculated in part (a). What fixed amount would each household have to pay for Kristina’s plan to work?
==+c. Kristina knows that deadweight loss is something that this small town can do without. She suggests that each household be required to pay a fixed amount just to receive any electricity at all,
==+a. If the regulators of LWE want to make sure that there is no deadweight loss in this market, what price will they force LWE to charge?
==+Lake Wobegon Electric’s (LWE) cost of producing electricity is TC = 500 + Q.
==+How does this decision affect price, quantity, consumer surplus, DD’s profit, and deadweight loss?
==+e. Now suppose the government sets the maximum price at $23.
==+ What is the resulting deadweight loss?
==+ What profit and consumer surplus would then be generated?*
==+b. What would output be if DD acted like a perfect competitor and set MC = P?

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