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microeconomics principles

Questions and Answers of Microeconomics Principles

Show that the equilibrium elasticities in the two countries must be equal in Solved Problem 12.3. M
A monopoly sells to n1 consumers in Country 1 and n2 in Country 2, where each person in Country 1 has a constant elasticity demand function of q1 = pε1and every person in Country 2 has a demand
How would the analysis in Solved Problem 12.2 change if m = 7 or if m = 4? (Hint: Where m = 4, the marginal cost curve crosses the MR curve three times—if we include the vertical section. The
A monopoly sells its good in the United States, where the elasticity of demand is -2, and in Japan, where the elasticity of demand is -5. Its marginal cost is 10. At what price does the monopoly sell
Warner Home Entertainment sold the Harry Potter and the Prisoner of Azkaban two-DVD movie set in China for about $3, which was only one-fifth the U.S. price, and sold about 100,000 units. The price
Universal Studios sold the Mamma Mia! DVD around the world. Universal charged $21.40 in Canada and $32 in Japan—more than the $20 it charged in the United States. Given that Universal had a
A monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is pA = 100 - QA, and the Japanese inverse demand function is pJ = 80 - 2QJ, where both prices, pA and
A patent gave Sony a legal monopoly to produce a robot dog called Aibo (“eye-BO”). The Chihuahuasized robot could sit, beg, chase balls, dance, and play an electronic tune. When Sony started
Hershey Park sells tickets at the gate and at local municipal offices. There are two groups of people. Suppose that the demand function for people who purchase tickets at the gate is QG = 10,000 -
A monopoly sells in two countries, and resale between the countries is impossible. The demand curves in the two countries are p1 = 100 - Q1 and p2 = 120 - 2Q2. The monopoly’s marginal cost is m =
A firm charges different prices to two groups.Would the firm ever operate where it was suffering a loss from its sales to the low-price group? Explain.
A monopoly has a marginal cost of zero and faces two groups of consumers. At first, the monopoly could not prevent resale, so it maximized its profit by charging everyone the same price, p = $5. No
A firm is a natural monopoly (see Chapter 11).Its marginal cost curve is flat, and its average cost curve is downward sloping (because it has a fixed cost). The firm can perfectly price
To promote her platinum-selling CD Feels Like Home in 2005, singer Norah Jones toured the country giving live performances. However, she sold an average of only two-thirds of the tickets available
See the Application “Google Uses Bidding for Ads to Price Discriminate,” which discusses how advertisers on Google’s Web site bid for the right for their ads to be posted when people search for
Using the information in the Application “Botox Revisited,” determine how much Allergan loses by being a single-price monopoly rather than a perfectly price-discriminating monopoly. Explain.
If a monopoly faces an inverse demand curve of p = 90 - Q, has a constant marginal and average cost of 30, and can perfectly price discriminate, what is its profit? What are the consumer surplus,
On July 12, 2012, Hertz charged $126.12 to rent a Nissan Altima for one day in New York City, but only $55.49 a day in Miami. Is this price discrimination? Explain.2. Perfect Price Discrimination
The 2002 production run of 25,000 new Thunderbirds included only 2,000 cars for Canada. Yet potential buyers besieged Canadian Ford dealers.Many hoped to make a quick profit by reselling the cars in
Disneyland price discriminates by charging lower entry fees for children than for adults and for local residents than for other visitors. Why does it not have a resale problem?
Many colleges provide students from low-income families with scholarships, subsidized loans, and other programs so that they pay lower tuitions than students from high-income families. Explain why
Spenser’s Superior Stoves advertises a one-day sale on electric stoves. The ad specifies that no phone orders will be accepted and that the purchaser must transport the stove. Why does the firm
Alexx’s monopoly currently sells its product at a single price. What conditions must be met so that he can profitably price discriminate?Exercises = exercise is available on MyEconLab; * = answer
As of 2012, the pharmaceutical companies Abbott Laboratories, AstraZeneca, Aventis Pharmaceuticals, Bristol-Myers Squibb Company, Eli Lilly, GlaxoSmithKline, Janssen, Johnson & Johnson, Novartis,
Bleyer Industries Inc., the only U.S. manufacturer of plastic Easter eggs, once manufactured 250 million eggs each year. However, imports from China cut into its business. In 2005, Bleyer filed for
A country has a monopoly that is protected by a specific tariff, τ, on imported goods. The monopoly’s profit-maximizing price is p*. The world price of the good is pw, which is less than p*.
For general functions, solve for the monopsony’s first-order condition if it is also a monopoly in the product market. M 8. Challenge
A monopsony faces a supply curve of p = 10 + Q.What is its marginal expenditure curve? If the monopsony has a demand curve of p = 50 - Q, what are the equilibrium quantity and price? How does this
What effect does a price support have on a monopsony? In particular, describe the equilibrium if the price support is set at the price where the supply curve intersects the demand curve.
Can a monopsony exercise monopsony power—that is, profitably set its price below the competitive level—if the supply curve it faces is horizontal?Why or why not?
What happens to the monopsony equilibrium if the minimum wage is set slightly above or below the competitive wage? (Hint: See Solved Problem 11.6.)
Suppose that the original labor supply curve, S1, for a monopsony shifts to the right to S2 if the firm spends $1,000 in advertising. Under what condition should the monopsony engage in this
A monopoly chocolate manufacturer faces two types of consumers. The larger group, the hoi polloi, loves desserts and has a relatively flat, linear demand curve for chocolate. The smaller group, the
A monopoly produces a good with a network externality at a constant marginal and average cost of$2. In the first period, its inverse demand curve is p = 10 - Q. In the second period, its demand is p
The price of wholesale milk dropped by 30.3% in 1999 when the Pennsylvania Milk Marketing Board lowered the regulated price. The price to consumers fell by substantially less than 30.3%. Why?
A monopoly drug company produces a lifesaving medicine at a constant cost of $10 per dose.The demand for this medicine is perfectly inelastic at prices less than or equal to the $100 (per day)income
Based on the information in the Botox Patent Monopoly application, what would happen to the equilibrium price and quantity if the government had set a price ceiling of $200 per vial of Botox?What
Describe the effects on output and welfare if the government regulates a monopoly so that it may not charge a price above p, which lies between the unregulated monopoly price and the optimally
Once the copyright runs out on a book or musical composition, the work can legally be put on the Internet for anyone to download. U.S. copyright law protects the monopoly for 95 years after the
In the Botox Patent Monopoly application, consumer surplus, area A, equals the deadweight loss, area C. Show that this equality is a result of the linear demand and constant marginal cost
Based on the information in the Botox Patent Monopoly application, what would happen to the equilibrium price and quantity if the government had collected a specific tax of $75 per vial of Botox?What
Can a firm operating in the upward-sloping portion of its average cost curve be a natural monopoly?Explain. (Hint: See Solved Problem 11.4.)
Can a firm be a natural monopoly if it has a U-shaped average cost curve? Why or why not?(Hint: See Solved Problem 11.4.)
What is the effect of a franchise (lump-sum) tax on a monopoly? (Hint: Consider the possibility that the firm may shut down.)4. Causes of Monopolies
Only Indian tribes can run casinos in California.These casinos are spread around the state so that each is a monopoly in its local community.California Governor Arnold Schwarzenegger negotiated with
In 1996, Florida voted on (and rejected) a 1¢-perpound excise tax on refined cane sugar in the Florida Everglades Agricultural Area. Swinton and Thomas(2001) used linear supply and demand
A monopoly with a constant marginal cost m has a profit-maximizing price of p1. It faces a constant elasticity demand curve with elasticity ε. After the government applies a specific tax of $1, its
If the inverse demand function facing a monopoly is p(Q) and its cost function is C(Q), show the effect of a specific tax, τ, on the monopoly’s profitmaximizing output. How does imposing τ affect
Suppose that many similar price-taking consumers (such as Denise in Chapter 10) have a single good (candy bars). Jane has a monopoly in wood, so she can set prices. Assume that no production is
Draw an example of a monopoly with a linear demand curve and a constant marginal cost curve.a. Show the profit-maximizing price and output, p*and Q*, and identify the areas of consumer surplus,
Suppose that all iPod owners consider only two options for downloading music to their MP3 players: purchasing songs from iTunes or copying songs from friends. With these two options, suppose the
In addition to the hard-drive-based iPod, Apple produces a flash-based audio player. Its 512MB iPod Shuffle (which does not have a hard drive) sold for$99 in 2005. According to iSuppli, Apple’s
When the iPod was introduced, Apple’s constant marginal cost of producing its top-of-the-line iPod was $200 (iSuppli), its fixed cost was approximately $736 million, and I estimate that its inverse
The U.S. Postal Service (USPS) has a constitutionally guaranteed monopoly on first-class mail. In 2012,it charged 44¢ for a stamp, which was not the profit-maximizing price—the USPS goal,
In 2009, the price of Amazon’s Kindle 2 was $359, while iSuppli estimated that its marginal cost was$159. What was Amazon’s Lerner Index? What elasticity of demand did it face if it was engaging
Under what circumstances does a monopoly set its price equal to its marginal cost?
Are major-league baseball clubs profit-maximizing monopolies? Some observers of this market contend that baseball club owners want to maximize attendance or revenue. Alexander (2001) said that one
Show why a monopoly may operate in the upwardor downward-sloping section of its long-run average cost curve but a competitive firm operates only in the upward-sloping section.
AT&T Inc., the large U.S. phone company and the one-time monopoly, left the payphone business because people were switching to wireless phones(Crayton Harrison, “AT&T to Disconnect PayPhone
Suppose that the inverse demand for San Francisco cable car rides is p = 10 - Q/1,000, where p is the price per ride and Q is the number of rides per day.Suppose the objective of San Francisco’s
Given that a monopoly’s marginal revenue curve is strictly downward sloping, use math and a graph(such as Figure 11.3) to show why a monopoly’s revenue curve reaches its maximum at a larger
If a monopoly’s inverse demand curve is p = 13 - Q and its cost function is C = 25 + Q + 0.5Q2, what Q* maximizes the monopoly’s profit (or minimizes its loss)? At Q*, what is the price and the
Suppose that the inverse demand function for a monopolist’s product is p = 9 - Q/20. Its cost function is C = 10 + 10Q - 4Q2 + 2 3 Q3. Draw marginal revenue and marginal cost curves. At what
The inverse demand curve that a monopoly faces is p = 10Q-0.5. The firm’s cost curve is C(Q) = 5Q.What is the profit-maximizing quantity and price? M
The inverse demand curve that a monopoly faces is p = 100 - Q. The firm’s cost curve is C(Q)= 10 + 5Q. What is the firm’s profit-maximizing quantity and price? How does your answer change if C(Q)
Show that the elasticity of demand is unitary at the midpoint of a linear inverse demand function and hence that a monopoly will not operate to the right of this midpoint. M
Given that the inverse demand function is p(Q) = a- bQ + (c/2)Q2, derive the marginal revenue function. Compare the corresponding marginal revenue curve to the linear one (where c = 0) and show how
If the inverse demand curve a monopoly faces is p = 10Q-0.5, what is the firm’s marginal revenue curve? (Hint: See Solved Problem 11.1.) M
If the inverse demand function is p = 300 - 3Q, what is the marginal revenue function? Draw the demand and marginal revenue curves. At what quantities do the demand and marginal revenue lines hit the
A competitive industry with an upward-sloping supply curve sells Qh of its product in its home country and Qf in a foreign country, so the total quantity it sells is Q = Qh + Qf . No one else
Initially, electricity is sold in New York and in other states at a competitive single price. Now suppose that New York restricts the quantity of electricity that its citizens can buy. Show what
A central city imposes a rent control law that places a binding ceiling on the rent that can be charged for an apartment. The suburbs of this city do not have rent control. What happens to the rental
Peaches are sold in a competitive market. There are two types of demanders: consumers who eat fresh peaches and canners. If the government places a binding price ceiling only on peaches sold directly
Suppose that society used the “opposite” of a Rawlsian welfare function: It tried to maximize the wellbeing of the best-off member of society. Write this welfare function. What allocation
Give an example of a social welfare function that leads to the egalitarian allocation that everyone should be given exactly the same bundle of goods.
A society consists of two people with utilities U1 and U2, and the social welfare function is W = α1U1 + α2U2. Draw a utility possibilities frontier similar to the ones in Figure 10.8. Use calculus
Mexico and the United States can both produce food and toys. Mexico has 100 workers and the United States has 300 workers. If they do not trade, the United States consumes 10 units of food and 10
Modify Solved Problem 10.5 to show that the PPF more closely approximates a quarter of a circle if there are six people. One of these new people, Bill, can produce five cords of wood, or four candy
If Jane and Denise have identical, linear production possibility frontiers (see the Jane and Denise example in the text), are there gains to trade? Explain.(Hint: See Solved Problem 10.5.)
Suppose that Britain can produce 10 units of cloth or 5 units of food per day (or any linear combination) with available resources and that Greece can produce 2 units of food per day or 1 unit of
In panel c of Figure 10.5, the joint production possibility frontier is concave to the origin. When the two individual production possibility frontiers are combined, however, the resulting PPF could
In an Edgeworth box, illustrate that a Paretoefficient equilibrium, pointa, can be obtained by competition, given an appropriate endowment. Do so by identifying an initial endowment point, b, located
Continuing with Exercise 2.7, determine p, the competitive price of G, where the price of H is normalized to equal one. (Hint: See Solved Problem 10.4.) M 3. Competitive Exchange
In a pure exchange economy with two goods, G and H, the two traders have Cobb-Douglas utility functions. Suppose that Tony’s utility function is Ut = Gt Ht and Margaret’s utility function is Um =
Continuing with Exercise 2.5, what are the competitive equilibrium prices, where one price is normalized to equal one? (Hint: See Solved Problem 10.4.) M
Adrienne and Stephen consume pizza, Z, and cola, C. Adrienne’s utility function is UA = ZACA, and Stephen’s is UA = Z0.5 s C0.5 s . Their endowments are ZA = 10, CA = 20, ZS = 20, and CS = 10.a.
Two people trade two goods that they cannot produce. Suppose that one consumer’s indifference curves are bowed away from the origin—the usual type of curves—but the other’s are concave to the
The two people in a pure exchange economy have identical utility functions. Will they ever want to trade? Why or why not?
Explain why point e in Figure 10.3 is not on the contract curve. (Hint: See Solved Problem 10.2.)
Initially, Michael has 10 candy bars and 5 cookies, and Tony has 5 candy bars and 10 cookies. After trading, Michael has 12 candy bars and 3 cookies.In an Edgeworth box, label the initial allocation
Competitive firms in Africa sell their output only in Europe and the United States (which do not produce the good themselves). The industry’s supply curve is upward sloping. Europe puts a tariff of
Suppose that the government gives a fixed subsidy of T per firm in one sector of the economy to encourage firms to hire more workers. What is the effect on the equilibrium wage, total employment, and
What is the effect of a subsidy of s per hour on labor in only one sector of the economy on the equilibrium wage, total employment, and employment in the covered and uncovered sectors? (Hint: See
Philadelphia collects an ad valorem tax of 3.928%on its residents’ earnings (see the Application“Urban Flight”), unlike the surrounding areas.Show the effect of this tax on the equilibrium
Initially, all workers are paid a wage of w1 per hour.The government taxes the cost of labor by t per hour only in the “covered” sector of the economy.That is, if the wage workers receive in the
The demand curve in Sector 1 of the labor market is L1 = a - bw. The demand curve in Sector 2 is L2 = c - dw. The supply curve of labor for the entire market is L = e + fw. In equilibrium, L1 + L2 =
The market demand for medical checkups per day is QF = 25(198 + nC /20,000 - pF), where nC is the number of patients per day who are at least 40 years old, and pF is the price of a checkup. The
The demand functions for each of two goods depend on the prices of the goods, p1 and p2: Q1 = 15 - 3p1 + p2 and Q2 = 6 - 2p2 + p1.However, each supply curve depends only on its own price: Q1 = 2 + p1
The demand functions for the only two goods in the economy are Q1 = 10 - 2p1 + p2 and Q2 = 10 - 2p2 + p1. There are five units of each good. Solve for the equilibrium: p1, p2, Q1, and Q2. M
There are many possible ways to limit the number of cabs in a city. The most common method is an explicit quota using a fixed number of medallions that are good forever and can be resold. One

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