Chapter 12: Managerial Decisions for Firms with Market Power
12-47 Refer to the following table that gives the demand facing a monopolist:
Price
Quantity
$20
20
15
40
10
65
5
70
How much does the 28th unit of output add to total revenue?
a. $2
b. $10
c. $20
d. $200
e. none of the above
12-48 Refer to the following table that gives the demand facing a monopolist:
Price
Quantity
$20
20
15
40
10
65
5
70
If a firm earns profits of $250 by producing 40 units of output, the firm charges a price of _____
and has total costs of ______.
a. $15, $250
b. $15, $350
c. $20, $150
d. $600, $450
e. none of the above
Chapter 12: Managerial Decisions for Firms with Market Power
12-49 Refer to the following table that gives the demand facing a monopolist:
Price
Quantity
$20
20
15
40
10
65
5
70
Demand is __________ between 65 and 70 units of output because marginal revenue in that
range is ______.
a. elastic, $50
b. elastic, $100
c. inelastic, negative
d. inelastic, positive
12-50 A manager of a firm with market power faces the marginal revenue product and average revenue
product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a
single variable input, labor, which costs $600 per worker each week.
Given the above, the 14th worker hired adds $_______ to the firm’s total revenue each week.
a. $200 per week
b. $400 per week
c. $500 per week
d. $700 per week
e. $900 per week
Chapter 12: Managerial Decisions for Firms with Market Power
12-51 A manager of a firm with market power faces the marginal revenue product and average revenue
product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a
single variable input, labor, which costs $600 per worker each week.
Given the above, in order to maximize profit, the manager should hire ________ workers per
week.
a. 9
b. 10
c. 12
d. 18
12-52 A manager of a firm with market power faces the marginal revenue product and average revenue
product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a
single variable input, labor, which costs $600 per worker each week.
Given the above, in profit-maximizing (or loss-minimizing) equilibrium, the firm’s total variable
costs are
Chapter 12: Managerial Decisions for Firms with Market Power
a. $12,000.
b. $6,000.
c. $600.
d. $400.
e. none of the above
12-53 A manager of a firm with market power faces the marginal revenue product and average revenue
product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a
single variable input, labor, which costs $600 per worker each week.
Given the above, the maximum profit the firm can earn is _____________.
a. $4,800 per week.
b. $3,000 per week.
c. $2,400 per week.
d. $1,800 per week.
e. -$1,800 per week.
Chapter 12: Managerial Decisions for Firms with Market Power
12-54 A manager of a firm with market power faces the marginal revenue product and average revenue
product curves shown below. The firm incurs weekly fixed costs of $1,800. The firm employs a
single variable input, labor, which costs $600 per worker each week.
Given the above, suppose the weekly wage rate increases to $1,400 per worker. The firm would
hire _______ workers and earn a profit of _______ per week.
a. 6 ; $8,400
b. 6 ; $6,000
c. 6 ; −$2,400
d. 6 ; $4,800
e. 0 ; −$1,800
12-55 All of the following could be a barrier to entry EXCEPT:
a. a government franchise.
b. decreasing long-run average cost.
c. patents.
d. switching costs.
e. rising LMC.
12-56 A monopolistically competitive industry is in the process of moving toward long-run equilibrium.
This period the product of a typical firm has more substitutes than last period. This means that
a. there was entry into the industry.
b. a typical firm will produce more this period.
c. a typical firm’s profits will fall this period.
Chapter 12: Managerial Decisions for Firms with Market Power
d. both a and c
e. all of the above
12-57 If a monopolistically competitive market is in long-run equilibrium, each firm
a. charges a price which is higher than long-run marginal cost.
b. earns economic profits.
c. produces that level of output at which long-run average cost is minimum.
d. all of the above
e. none of the above
12-58 A monopolistic competitor is producing a level of output at which price is $200, marginal
revenue is $100, average total cost is $210, marginal cost is $100, and average variable cost is
$180. In order to maximize profit, the firm should
a. increase output.
b. keep output the same.
c. decrease output.
d. shut down.
12-59 A monopolistic competitor is currently producing 2,000 units of output; price is $100, marginal
revenue is $80, average total cost is $130, marginal cost is $60, and average variable cost is $60.
The firm should
a. raise price because the firm is losing money.
b. keep the price the same because the firm is producing at minimum average variable cost.
c. raise price because the last unit of output decreased profit by $30.
d. lower price because the next unit of output increases profit by $20.
Chapter 12: Managerial Decisions for Firms with Market Power
12-60 In a monopolistically competitive industry in long-run equilibrium
a. each firm is making a normal profit.
b. each firm is producing the output at which long-run average cost is at its minimum point.
c. price equals marginal cost for each firm.
d. all of the above
e. none of the above
12-61 If firms in a monopolistically competitive industry are making an economic profit,
a. new firms will enter the industry.
b. economic profit will fall in future periods.
c. price is higher than marginal cost.
d. all of the above
12-62 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
AVC =30 –0.005Q+0.0000005Q2
where
Qd
is 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 $2. Total fixed cost is $100,000. What is the
estimated demand function for the firm?
a.
= 71,000 − 500P
b.
= 39,000 − 200P
c.
= 39,000 − 500P
d.
= 40,000 − 200P
Chapter 12: Managerial Decisions for Firms with Market Power
12-63 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
AVC =30 –0.005Q+0.0000005Q2
where
Qd
is 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 $2. Total fixed cost is $100,000. What is the
estimated marginal revenue function for the firm?
a. MR = 48 − 0.002Q
b. MR = 78 − 0.002Q
c. MR = 78 − 0.004Q
d. MR = 48 − 0.004Q
12-64 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
AVC =30 –0.005Q+0.0000005Q2
where
Qd
is 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 $2. Total fixed cost is $100,000. What is the
profit-maximizing choice of output?
a. 8,000 units
b. 10,000 units
c. 12,000 units
d. 16,000 units
e. 0 units, the firm shuts down
12-65 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
Chapter 12: Managerial Decisions for Firms with Market Power
AVC =30 –0.005Q+0.0000005Q2
where
Qd
is 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 $2. Total fixed cost is $100,000. What price
should the firm charge in order to maximize profit?
a. $42.50
b. $48
c. $50
d. $62
e. $70
12-66 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
AVC =30 –0.005Q+0.0000005Q2
where
Qd
is 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 $2. Total fixed cost is $100,000. The firm
should ______________ because _______________.
a. shut down, P = $62 < TVC = $229.50
b. operate, P = $62 > AVC = $17.50
c. operate, P = $62 > AVC = $22
d. operate, P = $60.50 > AVC = $25.50
12-67 A firm with market power faces the following estimated demand and average variable cost
functions:
Qd=39,000 –500P+0.4M–8,000P
R
AVC =30 –0.005Q+0.0000005Q2
Chapter 12: Managerial Decisions for Firms with Market Power
where
Qd
is 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 $2. Total fixed cost is $100,000. What is the
firm’s profit?
a. $147,000
b. $120,000
c. $220,000
d. $335,000
12-68 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. For 2016, the forecasted demand function is
a.
= 300,000 − 500P
b.
= 100,000 − 100P
c.
= 600,000 − 100P
d.
= 200,000 − 500P
e. none of the above
12-69 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. For 2016, the inverse demand function is
a. Q = 300 − 0.005P.
b. P = 600 − 0.001Q.
c. P = 300 − 0.002Q.
d. P = 600 − 0.004Q.
e. none of the above
12-70 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. For 2016, the marginal revenue function is
a. MR = 290 − 0.5P.
b. MR = 580 − 0.001Q.
c. MR = 290 − 0.002Q.
d. MR = 600 − 0.004Q.
e. none of the above
12-71 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. The average variable cost function is estimated to be
AVC =520 –0.03Q+0.000001Q2
Total fixed cost in 2016 is expected to be $4 million. The estimated marginal cost function is
a. SMC = 260 − 0.03Q + 0.000015Q2.
b. SMC = 520 − 0.06Q + 0.000003Q2.
c. SMC = 520 − 0.03Q + 0.000002Q2.
d. SMC = 260 − 0.015Q + 0.000005Q2.
e. none of the above
12-72 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. The average variable cost function is estimated to be
AVC =520 –0.03Q+0.000001Q2
Total fixed cost in 2016 is expected to be $4 million. The profit-maximizing level of output for
2016 is
a. 1,000 units.
b. 4,000 units.
c. 5,000 units.
d. 10,000 units.
e. 20,000 units.
12-73 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. The average variable cost function is estimated to be
AVC =520 –0.03Q+0.000001Q2
Total fixed cost in 2016 is expected to be $4 million. The profit-maximizing price for 2016 is
a. $80.
b. $100.
c. $260.
d. $520.
e. $560.
12-74 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. The average variable cost function is estimated to be
AVC =520 –0.03Q+0.000001Q2
Total fixed cost in 2015 is expected to be $4 million. The manager should ________________
because_____________.
a. shut down; P = $520 < TVC = $320
b. shut down; P = $480 < AVC = $500
c. operate; P = $560 > AVC = $320
d. operate; P = 480 > AVC = $300
12-75 The market demand for a monopoly firm is estimated to be:
Qd=100,000 –500P+2M+5000P
R
where
Qd
is quantity demanded, P is price, M is income, and
P
R
is the price of a related good.
The manager has forecasted the values of M and
P
R
will be $50,000 and $20, respectively, in
2016. The average variable cost function is estimated to be
AVC =520 –0.03Q+0.000001Q2
Total fixed cost in 2016 is expected to be $4 million. The firm’s profit is
a. $100,000.
b. $200,000.
c. $375,000.
d. −$182,000.
e. $800,000.
Chapter 12: Managerial Decisions for Firms with Market Power
12-76 If demand is estimated to be
Qd
= 240 − 6P, the inverse demand function is
a. P = 40 − 0.1667Q.
b. P = 240 − Q.
c.
= 40 − P.
d.
= 240 − 12P.
e.
= 240 − 3P.
12-77 If demand is estimated to be
Qd
= 240 − 6P, the marginal revenue function is
a. MR = 40 − 0.33Q.
b. MR = 240 − 2Q.
c. MR = 40 − 2P.
d. MR = 240 − 12P.
e. MR = 240 − 6P.
12-78 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 forecasted demand function for 2016 is:
a.
= 212,000 − 500P
b.
= 200,000 − 2,000P
c.
= 80,000 − 500P
d.
= 150,000 − 2,000P
Chapter 12: Managerial Decisions for Firms with Market Power
e.
= 110,000 − 500P
12-79 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 forecasted marginal revenue function for
2016 is:
a. MR = 200,000 − 0.004Q
b. MR = 424 − 0.002Q
c. MR = 110 − 0.002Q
d. MR = 424 − 0.004Q
e. MR = 120 − 0.002Q
12-80 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 average variable cost function?
a. AVC = 200 −0.012Q + 0.000002Q2
b. AVC = 200 − 0.048Q + 0.000012Q2
c. AVC = 200 − 0.048Q + 0.000036Q2
d. AVC = 200 − 0.012Q + 0.000018Q2