Chapter 12: Managerial Decisions for Firms with Market Power
12-81 Using time-series data, the demand function for a profit-maximizing monopolist has been
estimated as
Qd=142,000 –500P+6M–400P
R
where
Qd
is the amount sold, P is price, M is income, and
P
R
is the price of a related good. The
estimated values for M and
P
R
in 2014 are $25,000 and $200, respectively. The short-run
marginal cost curve for this firm has been estimated as:
MC =200 –0.024Q+0.000006Q2
Total fixed cost is forecast to be $500,000 in 2016.What is the profit-maximizing (or loss-
minimizing) level of production?
a. 0 units, the firm should shut down.
b. 1,000 units
c. 1,800 units
d. 2,000 units
e. 8,000 units
12-82 Using time-series data, the demand function for a profit-maximizing monopolist has been
estimated as
Qd=142,000 –500P+6M–400P
R
where
Qd
is the amount sold, P is price, M is income, and
P
R
is the price of a related good. The
estimated values for M and
P
R
in 2014 are $25,000 and $200, respectively. The short-run
marginal cost curve for this firm has been estimated as:
MC =200 –0.024Q+0.000006Q2
Total fixed cost is forecast to be $500,000 in 2016. What is the value of average variable cost at
the optimal level of output?
a. $76
b. $96
c. $232
d. $196
e. $112
Chapter 12: Managerial Decisions for Firms with Market Power
12-83 Using time-series data, the demand function for a profit-maximizing monopolist has been
estimated as
Qd=142,000 –500P+6M–400P
R
where
Qd
is the amount sold, P is price, M is income, and
P
R
is the price of a related good. The
estimated values for M and
P
R
in 2012 are $25,000 and $200, respectively. The short-run
marginal cost curve for this firm has been estimated as:
MC =200 –0.024Q+0.000006Q2
Total fixed cost is forecast to be $500,000 in 2016.What is the optimal price?
a. This is irrelevant since the firm will not produce in the short run.
b. $200
c. $250
d. $408
e. $520
12-84 Using time-series data, the demand function for a profit-maximizing monopolist has been
estimated as
Qd=142,000 –500P+6M–400P
R
where
Qd
is the amount sold, P is price, M is income, and
P
R
is the price of a related good. The
estimated values for M and
P
R
in 2014 are $25,000 and $200, respectively. The short-run
marginal cost curve for this firm has been estimated as:
MC =200 –0.024Q+0.000006Q2
Total fixed cost is forecast to be $500,000 in 2016. The firm’s forecasted profit (loss) in 2016 is
a. a loss of $100,000.
b. a loss of $500,000.
c. a profit of $100,000.
d. a profit of $500,000.
e. a profit of $908,000.
Chapter 12: Managerial Decisions for Firms with Market Power
12-85 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
What is the estimated demand function for the firm?
a.
Qd
= 1,040,000 − 2,000P
b.
Qd
= 800,000 − 4,000P
c.
Qd
= 800,000 − 500P
d.
Qd
= 1,600,000 − 2,000P
12-86 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
What is the estimated marginal revenue function for the firm?
a. MR = 800 − 0.002Q
b. MR = 800 − 0.004Q
c. MR = 1,600 − 0.004Q
d. MR = 520 − 0.001Q
12-87 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
Chapter 12: Managerial Decisions for Firms with Market Power
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
What is the profit-maximizing choice of output?
a. 8,000 units
b. 10,000 units
c. 12,000 units
d. 20,000 units
e. 0 units, the firm shuts down
12-88 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
What price should the firm charge in order to maximize profit?
a. $356
b. $400
c. $420
d. $445
e. $510
12-89 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
The firm should ______________ because _______________.
a. shut down, P = $356 < TVC = $445
b. operate, P = $510 > AVC = $300
c. operate, P = $560 > AVC = $160
Chapter 12: Managerial Decisions for Firms with Market Power
d. operate, P = $600 > AVC = $255
12-90 A price-setting firm faces the following estimated demand and average variable cost functions:
Qd=800,000 –2,000P+0.7 M+4,000P
R
AVC =500 –0.03Q+0.000001Q2
where
Qd
is the quantity demanded, P is price, M is income, and
P
R
is the price of a related
good. The firm expects income to be $40,000 and
P
R
to be $53. Total fixed cost is $2,600,000.
What is the firm’s profit?
a. $1,470,000
b. $1,200,000
c. $1,600,000
d. −$2,600,000
12-91 In order to maximize profit, a firm that produces its output in two plants will produce the level of
total output at which the last unit of output produced adds the same amount to total revenue as to
the
a. first plant’s total cost.
b. second plant’s total cost.
c. firm’s total cost
d. both a and b
12-92 A firm is producing 10,000 units of output in two plants, A and B, and each plant is producing
5,000 units of output. The marginal cost in plant A is $10 and the marginal cost in B is $6. To
reduce the cost of producing 10,000 units the firm should
a. produce more in A and less in B.
b. produce less in A and more in B.
c. produce it all in B because B is the lower cost plant.
d. do nothing since the output in each plant is equal.
Chapter 12: Managerial Decisions for Firms with Market Power
12-93 To maximize its profit, a firm with two plants should
a. produce the output at which total marginal cost equals marginal revenue.
b. choose the profit-maximizing output then allocate it equally between the two plants.
c. allocate output so that marginal cost is the same in two plants
d. both a and b
e. both a and c
12-94 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
Qd=120 –10P
MCA=4+(1/ 5)QA
MCB=6+(1/ 10)QB
What is the firm’s marginal revenue function?
a. MR = 12 − (1/5)P
b. MR = 12 − (1/5)Q
c. MR = 120 – 20P
d. MR = 120 − 20Q
e. none of the above
12-95 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
Qd=120 –10P
MCA=4+(1/ 5)QA
MCB=6+(1/ 10)QB
What is the firm’s total marginal cost function?
a. MC = 24 + (1/50)Q
b. MC = 10 + (3/15)Q
c. MC = (80/15) + (1/15)Q
d. MC = 2 + (1/10)Q
Chapter 12: Managerial Decisions for Firms with Market Power
12-96 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
Qd=120 –10P
MCA=4+(1/ 5)QA
MCB=6+(1/ 10)QB
In order to maximize profit, how many units of output should the firm produce?
a. 10
b. 15
c. 25
d. 45
12-97 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
Qd=120 –10P
MCA=4+(1/ 5)QA
MCB=6+(1/ 10)QB
What is the profit-maximizing price?
a. $7
b. $8
c. $9
d. $9.50
e. none of the above
12-98 A firm with two plants, A and B, has the following estimated demand and marginal cost functions:
Qd=120 –10P
MCA=4+(1/ 5)QA
MCB=6+(1/ 10)QB
How should the firm allocate total output between the two plants in order to maximize profit?
Chapter 12: Managerial Decisions for Firms with Market Power
a. produce 5 units in plant A, 10 units in plant B
b. produce 15 units in plant A, 10 units in plant B
c. produce 20 units in plant A, 20 units in plant B
d. produce 20 units in plant A, 25 units in plant B
e. none of the above
12-99
The figure above shows the demand and cost conditions for a firm with two plants. In order to
maximize profit, how many units of output should the firm produce?
a. 10
b. 20
c. 30
d. 40
e. 50
Chapter 12: Managerial Decisions for Firms with Market Power
12-100
The figure above shows the demand and cost conditions for a firm with two plants. What is the
profit-maximizing price?
a. $20
b. $30
c. $40
d. $50
e. $60
12-101
Chapter 12: Managerial Decisions for Firms with Market Power
The figure above shows the demand and cost conditions for a firm with two plants. How should
the firm allocate total output between the two plants in order to maximize profit?
a. produce 10 units in plant 1, 20 units in plant 2
b. produce 30 units in plant 1, 20 units in plant 2
c. produce 40 units in plant 1, 40 units in plant 2
d. produce 40 units in plant 1, 50 units in plant 2
e. produce 55 units in plant 1, 60 units in plant 2
12-102 In order to maximize profit, a firm that produces its output in two plants will allocate total output
between the two plants so that
a. marginal cost is equal for the two plants.
b. marginal cost for the firm is equal to the sum of the plants’ marginal costs.
c. marginal revenue for the firm is equal to the sum of the plants’ marginal costs.
d. all of the above
12-103 A radio manufacturer has two plants — one in Taiwan and one in California. At the current
allocation of total output between the two plants, the last unit of output produced in the Taiwan
plant added $8 to total cost, while the last unit of output produced in the California plant added $6
to total cost. In order to maximize profit, the firm should
a. keep the allocation between plants unchanged.
b. produce all its output in the Taiwan plant.
c. produce all its output in the California plant.
d. switch some output from the California to the Taiwan plant.
e. switch some output from the Taiwan to the California plant.
12-104 A radio manufacturer has two plants — one in Taiwan and one in California. At the current
allocation of total output between the two plants, the last unit of output produced in the Taiwan
plant added $8 to total cost, while the last unit of output produced in the California plant added $6
to total cost. If the firm switches one unit of output from the California to the Taiwan plant, then
a. profit will increase $6.
b. profit will increase $14.
c. profit will decrease $2.
d. profit will decrease $6.
Chapter 12: Managerial Decisions for Firms with Market Power
12-105
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm manufactures
dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two plants. How many
dishwashers should the firm produce?
a. 40
b. 50
c. 70
d. 80
e. 100
Chapter 12: Managerial Decisions for Firms with Market Power
12-106
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm
manufactures dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two
plants. What price should the firm set?
a. $25
b. $30
c. $40
d. $45
e. $55
Chapter 12: Managerial Decisions for Firms with Market Power
12-107
The demand for dishwashers facing the AllClean Co. is given in the figure above. The firm
manufactures dishwashers in two plants. MC1 and MC2 are the marginal cost curves for those two
plants. How should the firm allocate total output between the two plants in order to maximize
profit?
a. 10 to plant 1, 40 to plant 2
b. 20 to plant 1, 30 to plant 2
c. 40 to plant 1, 40 to plant 2
d. 20 to plant 1, 60 to plant 2
e. 20 to plant 1, 50 to plant 2
12-108 A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a
total of 500 units of output in order to maximize profit. The firm is currently producing 200 units
in the Michigan factory and 300 units in the Texas factory.
At this allocation between plants, the last unit of output produced in Michigan added $5 to total
cost, while the last unit of output produced in Texas added $3 to total cost. The firm
a. is maximizing profit; should keep producing 200 units in Michigan and 300 units in
Texas.
b. should produce 250 units in each factory.
c. should produce more in the Michigan factory and less in the Texas factory.
d. should produce more in the Texas factory and less in the Michigan factory.
Chapter 12: Managerial Decisions for Firms with Market Power
12-109 A firm with two factories, one in Michigan and one in Texas, has decided that it should produce a
total of 500 units of output in order to maximize profit. The firm is currently producing 200 units
in the Michigan factory and 300 units in the Texas factory.
At this allocation between plants, the last unit of output produced in Michigan added $5 to total
cost, while the last unit of output produced in Texas added $3 to total cost. If the firm produces
201 units in Michigan and 299 units in Texas instead:
a. total cost will decrease $2
b. profit will increase $2
c. total cost will decrease $3
d. both a and b
e. none of the above
12-110 In order to maximize profit, a firm that produces its output in two plants will allocate
total output between the two plants so that
a. marginal cost is equal for the two plants.
b. marginal revenue is equal for the two plants.
c. marginal cost for the firm is equal to the sum of the plants’ marginal revenue.
d. both a and b
e. all of the above