7. You obtained a copy of the solutions manual for the CAS CH 203 (Organic Chemistry) textbook. You are the only student on campus with the solutions so you have a monopoly on their sale. You will probably get expelled and go to jail eventually, but in the meantime you are going to make some money by selling solutions to desperate pre-med students in the class. The table below shows some data on local demand for the solutions and associated revenue-related functions. P m answer) -M ___ __-- __ -2__ 120 You have no costs because it is (almost) free to send an e-mail with a copy of parts of the PDF. In order to maximize profit you should sell answers. 8. Monopolies and innovation. You saw in lecture that monopolies can benefit by inventing new products that qualify for patent protection. The justification for the patents is that innovation helps consumers so let's see an example of how that can happen. Many companies make devices to help monitor blood sugar which is important for managing diabetes. The technology to do this is old so the devices are sold in a competitive market at marginal cost, $40. The demand for the device is described by QD = 100 2P so you can graph the demand and find the current consumer surplus in this marketplace. What is the consumer surplus? S 9. (continued) The devices are difficult to manufacture due to the complicated electronics involved but one company expects that with some R&D it can find a way to integrate some of the parts and produce the devices with a marginal cost half as big. The company expects to get a patent on the new production process and it will then have a monopoly on the new device. As a monopolist they will face an MR(Q) = 50 Q. (There is a connection between demand and MR that is beyond the scope of this course. Just take this one as given.) You can use the MR and MC to find the profit maximizing quantity and profit for the firm. Based on the price and quantity you can calculate consumer surplus. What is the consumer surplus with the patent? S 1. Which of the following statements is (are) true of a monopoly? (i) A monopoly can choose the price it sells at. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly will earn unlimited profits. a. (i) only b. (ii) only c. (i) and (ii) d. (ii) and (iii) 2. Natural monopolies a. produce the optimal quantity of output, unlike other monopolies b. exist when one very big firm would have a lower average cost than any two smaller firms c. generally experience large diseconomies of scale, leading to production inefficiencies and work stoppages d. face market demand curves that are perfectly elastic 3. GlaxoSmith Kline owns a government grant of temporary monopoly rights on the medicine Combivir. This is probably due to: a. a patent b. control of a resource c. economies of scale C]. collusion 4. Competitive firms differ from monopolies in which of the following ways? (i) Monopolies are price makers while competitive firms are price takers (ii) Marginal revenue for a competitive firm equals the price, while marginal revenue for a monopoly is less than the price (iii) Monopolies must lower their price in order to sell more oftheir product, while competitive firms do not a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. (i), (ii), and (iii) 5. The diagram below was made by the textbook publisher and shows the typical curves relevant to a monopoly (demand, marginal revenue, average total cost, and marginal revenue) without the labels. Determine what each curve represents and then answer the question below. Cost and Revenue($) 0001 02 Q4 Quanlity If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to a. Q1 b. 02 C- Q3 (1-0.4 5. The graph below shows demand, marginal revenue, average cost, and marginal cost for a monopoly. The firm's maximum profit is S Price $20 15 lllllll l ...... |||l uuuuuuuuuuuu ............... AC N 43010: I 5 910 1516 18 20 25 Quantity