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Chapter 24: Q. 12 (page 554)
Demand has fallen. What is going to happen to the monopolist's price, output rate, and economic profits?
Long-run input prices have neither dropped nor remained constant. Since variable costs have dipped with consistent or dipped costs in the long run, economic profits have resulted.
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Suppose that initially the data in Problem 24-17 apply, but then an increase in fixed costs occurs. As a result, the ATC curve in Figures 24-6 shifts upward. Consequently, the average total cost of producing 9.5 units of output rises to $5 per unit. Does the monopolist's profit-maximizing weekly output rise, fall, or remain the same? What is the new amount of maximized weekly economic profits?
Consider the information from Problems 24-13. If the total costs of producing 13 units were equal to $72.70 per week, would the marginal revenue of producing the 13 th unit (your answer to Problem 24-13) be greater or less than the marginal cost of producing that unit? How would the firm's weekly economic profits be affected if the firm were to produce the 13 th unit?
Use the following graph to answer the questions that follow,
a. What is the monopolist's profit-maximizing output?
b. At the profit-maximizing output rate, what are average total cost and total revenue ?
c. At the profit-maximizing output rate, what are the monopolist's total cost and total revenue?
d. What is the maximum profit?
e. Suppose that the marginal coot and average total cost curves in the diagram also illustrate the horizontal summation of the firms in a perfectly competitive industry in the long run. What would the equilibrium price and output be if the market were perfectly competitive? Explain the economic cost to society of allowing a monopoly to exist.
For each of the following examples, explain how and why a monopoly would try to price discriminate.
a. Air transport for businesspeople and tourists
b. Serving food on weekdays to businesspeople and retired people- (Hint: Which group has more flexibility during a weekday to adjust to a price change and, hence, a higher price elasticity of demand?
c. A theater that shows the same movie to Large families and to individuals and couples. (Hint: For which set of people will the overall expense of a movie be a larger part of their budget, \(s\) o that demand is relatively more elastic?)
Suppose that in Figure 24-4, the monopolist knows that if it were to reduce the price of its product to $5.40 per unit, the quantity demanded-and hence its output-would rise to 13 units per week. What would be the marginal revenue that the monopolist would derive from producing and selling the 13th unit?
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