Explain all the parts of the question.

16) The above figure shows the demand, marginal revenue and marginal cost curves for a monopoly. The deadweight loss of this monopoly equals

A) h.

B) c.

C) c + f.

D) c + d + e + f.

E) None of the above

17) The above figure shows the demand, marginal revenue and marginal cost curves for a monopoly. Under monopoly, consumer surplus equals

A) a + b.

B) a + b + c.

C) a + b + c + d + e + f.

D) a E) None of the above. 7

18) Suppose a monopolist has a cost function C(Q) = 100 + 10Q + 2Q2 , and the inverse demand curve it faces is p = 90 - 2Q. This monopoly will maximize profit when it produces _____ units of output, by charging price ______ per unit. The maximum profit earned by this monopolist will be ______.

A) 13.33; $63.33; $433.20

B) 10; $70; $700

C) 10; $70; $400

D) 10; $70; $300

E) 13.33; $63.33; $844.19

19) The above figure shows the cost curves for a competitive firm. If the price is _______, then this firm will _______, and it ______ shut down in the short run.

A) less than $10; incur economic loss; will not.

B) greater than $10; earn economic profit; will not.

C) less than $10; incur economic loss; may or may not.

D) B and C only

E) A and B only

20) Consider a competitive profit-maximizing firm in the short run and suppose that the current market price is greater than minimum AC. If this firm finds that at its current level of production, MR > MC, it will ______. On the other hand if it finds that, at its current level of production, MR

A) increase output; decrease output

B) decrease output; increase output

C) decrease output; shut down

D) shut down; decrease output

E) increase output; shut down

. The 'paredox of thrift' is the argument that an 'I'icrease in desired saving shifts the Lid curve to the left as individuals increase their demand for money. thus lowering real GDP. . The endogenous growth predicted by the AK model is due to the assumption of a constant marginal product of capital. . In the Ali-AS model. monetary policy cannot stabilize both the price level and the level of real GDP following a shock to aggregate supply. . The shoe-leather cost of ination is minimized by targeth'ig a :ero rate of inflation. . The permanent income theory of consumption predicts that saving responds less to permanent changes in income than temporary changes in income. . According to the neoclassical theory of investment, expectations of a fall in the relative price of capital goods should increase investment. . Assuming the real intErest rate is fixed. expectations of higher ination clue to faster moneysupply growth will not have any effect on the level of real money balances. . In the Ben moi-Tobin model. an increase in transaction costs reduces the number of times individuals exchange interestbeeng assets and money, thus lowering the demand for money. SPli}.3 Transfer pricing Due to the expansion of business in Cogoland in recent years, SR Products has set up a marketing division there responsible for selling a new product. The head ofce and manufacnning plant remain in the United States. The company has estimated that the total cost of manufacturing in the USA and the cost of transportation of the product is given by the function: :3 =Q2+20Q+4 {10.151 where C = total cost per week in $ and (,1: units sold \"Ibis cost appears in the accounts of the manufacturing division. The total cost for the marketing division in Cogoland is given by: c =Q2+ 14Q+20 {10.151 \"Ibis includes the $111: per unit which is the transfer price paid by the marketing division to the manufacturing division. This total cost appears in the accounts of the marketing division. The revenue mction for the marketing division is estimated as: R = 50011 sq2 (10.1?) where R = total revenue per week in $. EL Calculate the optimal policy for the company as a whole. showing the price, output and overall prots of the rm. b. Calculate the optimal policies for the marketing division and the manufacturing divisions. assuming a transfer price of 51m. showing the overall prot of the rm in each case. c. Calculate the optimal transfer price in order to make the optimal policies for both divisions the same as that for the company as a whole. d What does the above situation imply regarding managerial strategy? As with all pricingproblems discussed so far. the problemcan be analysed either graphically or algebraically. In this case an algebraic approach will be used