CHAPTER 25: Monopoly
TRUE/FALSE
1. Since a monopoly charges a price higher than marginal cost, it will produce an inefficient amount of
output.
2. If the interest rate is 10%, a monopolist will choose a markup of price over marginal cost of at least
10%.
3. A natural monopoly occurs when a firm gains ownership of the entire stock of some natural resource
and thus is able to exclude other producers.
4. Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is
likely to get a higher rate of return in the stock market by investing in monopolistic rather than in
competitive industries.
5. If he produces anything at all, a profit-maximizing monopolist with some fixed costs and no variable
costs will set price and output so as to maximize revenue.
6. For a monopolist who faces a downward-sloping demand curve, marginal revenue is less than price
whenever quantity sold is positive.
7. A monopolist with constant marginal costs faces a demand curve with a constant elasticity of demand
and does not practice price discrimination. If the government imposes a tax of $1 per unit of goods
sold by the monopolist, the monopolist will increase his price by more than $1 per unit.
8. A monopolist will always equate marginal revenue and marginal cost when maximizing profit.
MULTIPLE CHOICE
1. A monopolist faces the inverse demand function described by p = 50 − 4q, where q is output. The
monopolist has no fixed cost and his marginal cost is $5 at all levels of output. Which of the following
expresses the monopolist’s profits as a function of his output?
a.
50 − 4q − 5
b.
50 − 8q
c.
45q − 4q2
d.
50q − 4q2 − 5
e.
None of the above.
2. A monopolist faces the inverse demand function described by p = 23 − 5q, where q is output. The
monopolist has no fixed cost and his marginal cost is $6 at all levels of output. Which of the following
expresses the monopolist’s profits as a function of his output?
a.
23 − 5q − 6
b.
17q − 5q2
c.
23 − 10q
d.
23q − 5q2 − 6
e.
None of the above.
3. A monopolist faces the inverse demand curve p = 64 − 2q. At what level of output is his total revenue
maximized?
a.
24
b.
26
c.
8
d.
32
e.
16
4. A monopolist faces the inverse demand curve p = 120 − 6q. At what level of output is his total revenue
maximized?
a.
20
b.
5
c.
20
d.
15
e.
10
5. The demand for a monopolist’s output is 7,000 divided by the square of the price in dollars that it
charges per unit. The firm has constant marginal costs equal to 1 dollar per unit. To maximize its
profits, it should charge a price of
a.
1 dollar.
b.
2 dollars.
c.
3 dollars.
d.
1.5 dollars.
e.
2.5 dollars.
6. A profit-maximizing monopolist faces the demand curve q = 100 − 3p. It produces at a constant
marginal cost of $20 per unit. A quantity tax of $10 per unit is imposed on the monopolist’s product.
The price of the monopolist’s product
a.
rises by $5.
b.
rises by $10.
c.
rises by $20.
d.
rises by $12.
e.
stays constant.
7. The demand for a monopolist’s output is 10,000 divided by the square of the price it charges. The
monopolist produces at a constant marginal cost of $5. If the government imposes a sales tax of $10
per unit on the monopolist’s output, the monopolist price will rise by
a.
$5.
b.
$10.
c.
$20.
d.
$12.
e.
None of the above.
8. The demand for a monopolist’s output is 6,000/(p + 2)2, where p is the price it charges. At a price of
$3, the elasticity of demand for the monopolist’s output is
a.
−1.
b.
−2.20.
c.
−1.20.
d.
−1.70.
e.
−0.70.
9. The demand for a monopolist’s output is 3,000/(p + 2)2, where p is the price it charges. At a price of
$3, the elasticity of demand for the monopolist’s output is
a.
−1.
b.
−2.60.
c.
−2.10.
d.
−1.60.
e.
−1.10.
10. The demand for a monopolist’s output is 6,000/(p + 7)2, where p is its price. It has constant marginal
costs equal to $5 per unit. What price will it charge to maximize its profits?
a.
$33
b.
$12
c.
$26
d.
$17
e.
$5
11. The demand for a monopolist’s output is 6,000/(p + 3)2, where p is its price. It has constant marginal
costs equal to $6 per unit. What price will it charge to maximize its profits?
a.
$9
b.
$18
c.
$21
d.
$15
e.
$6
12. A monopolist faces a constant marginal cost of $1 per unit. If at the price he is charging, the price
elasticity of demand for the monopolist’s output is −0.5, then
a.
the price he is charging must be $2.
b.
the price he is charging must exceed $2.
c.
the price he is charging must be less than $2.
d.
the monopolist cannot be maximizing profits.
e.
the monopolist must use price discrimination.
13. A profit-maximizing monopolist sets
a.
price equal to average cost.
b.
price equal to marginal cost.
c.
price equal to marginal cost plus a prorated share of overhead.
d.
price equal to marginal revenue.
e.
marginal revenue equal to marginal cost.
14. A monopolist has decreasing average costs as output increases. If the monopolist sets price equal to
average cost, it will
a.
produce too much output from the standpoint of efficiency.
b.
lose money.
c.
produce too little output from the standpoint of efficiency.
d.
maximize its profits.
e.
face excess demand.
15. A profit-maximizing monopolist faces a downward-sloping demand curve that has a constant elasticity
of −3. The firm finds it optimal to charge a price of $12 for its output. What is its marginal cost at this
level of output?
a.
$5
b.
$25
c.
$24
d.
$8
e.
$12
16. A profit-maximizing monopolist faces a downward-sloping demand curve that has a constant elasticity
of −4. The firm finds it optimal to charge a price of $24 for its output. What is its marginal cost at this
level of output?
a.
$55
b.
$18
c.
$48
d.
$10
e.
$24
17. A monopolist has constant marginal costs of $1 per unit. The demand for her output is 1,000/p if p is
less than or equal to 50. The demand is 0 if p 50. What is her profit maximizing level of output?
a.
5
b.
10
c.
15
d.
20
e.
25
18. The demand curve for the output of a certain industry is linear; q = A − Bp. There are constant
marginal costs of C. For all values of A, B, and C such that A 0, B 0, and 0 C A/B,
a.
if the industry is monopolized, prices will be exactly twice as high as they would be if the
industry were competitive.
b.
if the industry is competitive, output will be exactly twice as great as it would be if the
industry were monopolized.
c.
if the industry is monopolized, prices will be more than twice as high as if the industry is
competitive.
d.
if the industry is monopolized, output will be more than half as large as it would be if the
industry were competitive.
e.
None of the above.
19. A monopolist receives a subsidy from the government for every unit of output that is consumed. He
has constant marginal costs and the subsidy that he gets per unit of output is greater than his marginal
cost of production. But to get the subsidy on a unit of output, somebody has to consume it.
a.
He will pay consumers to consume his product.
b.
If he sells at a positive price, demand must be inelastic at that price.
c.
He will sell at a price where demand is elastic.
d.
He will give the good away.
e.
None of the above.
20. A monopolist faces the demand curve q = 90 − p/2, where q is the number of units sold and p is the
price in dollars. She has quasi-fixed costs, C, and constant marginal costs of $20 per unit of output.
Therefore her total costs are C + 20q if q 0 and 0 if q = 0. What is the largest value of C for which
she would be willing to produce positive output?
a.
$20
b.
$2,560
c.
$3,200
d.
$4,800
e.
$3,840
21. A monopolist faces the demand curve q = 90 − p/2, where q is the number of units sold and p is the
price in dollars. He has quasi-fixed costs, C, and constant marginal costs of $20 per unit of output.
Therefore his total costs are C + 20q if q 0 and 0 if q = 0. What is the largest value of C for which he
would be willing to produce positive output?
a.
$3,200
b.
$2,560
c.
$4,800
d.
$20
e.
$3,840
22. A natural monopolist has the total cost function c(q) = 350 + 20q, where q is its output. The inverse
demand function for the monopolist’s product is p = 100 − 2q. Government regulations require this
firm to produce a positive amount and to set price equal to average costs. To comply with these
requirements
a.
is impossible for this firm.
b.
the firm must produce 40 units.
c.
the firm could produce either 5 units or 35 units.
d.
the firm must charge a price of $70.
e.
the firm must produce 20 units.
23. A monopolist has the total cost function c(q) = 800 + 8q. The inverse demand function is 80 − 6q,
where prices and costs are measured in dollars. If the firm is required by law to meet demand at a price
equal to its marginal costs,
a.
the firm’s profits will be zero.
b.
the firm will lose $400.
c.
the firm will make positive profit but not as much profit as it would make if it were
allowed to choose its own price.
d.
the firm will lose $800.
e.
the firm will lose $480.
24. A monopolist has the total cost function c(q) = 750 + 5q. The inverse demand function is 140 − 7q,
where prices and costs are measured in dollars. If the firm is required by law to meet demand at a price
equal to its marginal costs,
a.
the firm will make positive profit but not as much profit as it would make if it were
allowed to choose its own price.
b.
the firm’s profits will be zero.
c.
the firm will lose $375.
d.
the firm will lose $750.
e.
the firm will lose $450.
25. A monopolist enjoys a monopoly over the right to sell automobiles on a certain island. He imports
automobiles from abroad at a cost of $10,000 each and sells them at the price that maximizes profits.
One day, the island’s government annexes a neighboring island and extends the monopolist’s
monopoly rights to this island. People on the annexed island have the same tastes and incomes and
there are just as many people as on the first.
a.
The monopolist doubles his price and his sales stay constant.
b.
The monopolist keeps his price constant and his sales double.
c.
The monopolist raises his price but does not necessarily double it.
d.
The monopolist’s profits more than double.
e.
None of the above.
26. An airline has exclusive landing rights at the local airport. The airline flies one flight per day to New
York with a plane that has a seating capacity of 100. The cost of flying the plane per day is $4,000 +
10q, where q is the number of passengers. The number of flights to New York demanded is q = 165 −
.5p. If the airline maximizes its monopoly profits, the difference between the marginal cost of flying an
extra passenger and the amount the marginal passenger is willing to pay to fly to New York is
a.
$10.
b.
$100.
c.
$140.
d.
$160.
e.
None of the above.
27. A monopoly has the demand curve q = 10,000 − 100p. Its total cost function is c(q) = 1,000 + 10q. The
government plans to tax the monopoly’s profits at a rate of 50%. If it does so, the monopoly will
a.
increase its price by 50%.
b.
increase its price by more than 50%.
c.
recover some but not all of the tax it pays by increasing its price.
d.
not change its price or the quantity it sells.
e.
None of the above.
28. A monopolist faces a downward-sloping demand curve and has fixed costs so large that when she
maximizes profits with a positive amount of output, she earns exactly zero profits. At this positive,
profit-maximizing output,
a.
there are decreasing returns to scale.
b.
demand is price inelastic.
c.
marginal revenue is greater than marginal cost.
d.
price equals marginal cost.
e.
average total cost is greater than marginal cost.
29. A computer software firm has developed a new and better spreadsheet program. The program is
protected by copyrights, so the firm can act as a monopolist for this product. The demand function for
the spreadsheet is q = 50,000 − 100p. Any single consumer will want only one copy. The marginal cost
of producing and distributing another copy and its documentation is just $10 per copy. If the company
sells this software at the profit-maximizing monopoly price, the number of consumers who would not
buy the software at the monopoly price but would be willing to pay at least the marginal cost is
a.
50,000.
b.
12,000.
c.
14,000.
d.
25,000.
e.
None of the above.
30. The town council of Frostbite, Ontario, is trying to decide whether to build an outdoor skating rink
which would cost $1 million and last for only one season. Operating costs would be zero. Yearly
passes would be sold to anyone who wanted to use the rink. If p is the price of the pass in dollars, the
number demanded would be q = 1200 − .6p. The council has asked you to advise them on building the
rink. You should tell them that
a.
revenues won’t cover construction costs at any ticket price. There is no way to increase
total consumer surplus by building the rink.
b.
if the rink is built and price is set to maximize profits, the town makes a profit and
consumers will be better off.
c.
if the rink is built and price set to maximize profits, the town makes a profit but consumers
are worse off than without a rink.
d.
there is no price at which ticket revenues still cover costs but total consumer surplus from
the rink exceeds costs.
e.
None of the above.
31. A monopolist produces at a point where the price elasticity of demand is −0.7 and the marginal cost is
$2. If you were hired to advise this monopolist on how to increase his profits, you would find that the
way to increase his profits is to
a.
increase his output.
b.
lower the price.
c.
decrease his output.
d.
produce the output level where marginal cost equals price.
e.
increase his advertising efforts.
32. The Hard Times Concrete Company is a monopolist in the concrete market. It uses two inputs, cement
and gravel, which it buys in competitive markets. The company’s production function is q = c1/2g1/2q,
where q is its output, c is the amount of cement it uses, and g is the amount of gravel it uses. If the
price of cement goes up, the firm’s demand for cement
a.
goes down and its demand for gravel goes up.
b.
and its demand for gravel go down.
c.
goes down and its demand for gravel may go up, down, or remain the same, depending on
the demand function for concrete.
d.
may go up, down, or not change, depending on whether the cement’s elasticity of demand
is less than, equal to, or greater than 21.
e.
could go up or down but must move in the opposite direction from its demand for gravel.
33. In a market with the inverse demand curve P = 10 − Q, Brand X is a monopolist with no fixed costs
and with a marginal cost of $2. If marginal cost rises to $4, by how much will the price of Brand X
rise?
a.
$2.
b.
$1.
c.
$3.
d.
$0; the firm is already charging the monopoly price.
e.
None of the above.
34. Charlie can work as many hours as he wishes at a local fast-food restaurant for a wage of $4 per hour.
Charlie also does standup comedy. Since Charlie lives in a quiet, rather solemn Midwestern town, he is
the town’s only comedian and has a local monopoly for standup comedy. The demand for comedy is Q
= 40 − P, where Q is the number of hours of comedy performed per week and P is the price charged
per hour of comedy. When Charlie maximizes his utility, he spends at least 1 hour per week working
at the restaurant and he gets at least 1 hour of leisure time. His utility depends only on income and
leisure. How many hours per week does he perform standup comedy?
a.
36
b.
40
c.
18
d.
20
e.
We can’t tell without knowing his utility function.
35. A certain monopolist has a positive marginal cost of production. Despite this fact, the monopolist
decides to produce a quantity of output that maximizes total revenues. Assume that the marginal
revenue curve for this monopolist always has a negative slope. Then the monopolist
a.
is minimizing its profits.
b.
produces the same output that it would if it maximized profits.
c.
produces less output than it would if it maximized profits.
d.
produces more output than it would if it were maximizing profits.
e.
produces an output where marginal revenue is strictly less than 1.
36. The demand curve facing a monopolist is D(p) = 100/p if p is 20 or smaller and D(p) = 0 if p 20. The
monopolist has a constant marginal cost of $1 per unit produced. What is the profit-maximizing
quantity of output for this monopolist?
a.
4
b.
3
c.
2
d.
5
e.
It cannot be determined from the information given.
37. An industry has two firms, a leader and a follower. The demand curve for the industry’s output is
given by p = 456 − 6q, where q is total industry output. Each firm has zero marginal cost. The leader
chooses his quantity first, knowing that the follower will observe the leader’s choice and choose his
quantity to maximize profits, given the quantity produced by the leader. The leader will choose an
output of
a.
25.33.
b.
38.
c.
19.
d.
76.
e.
None of the above.
38. An industry has two firms, a leader and a follower. The demand curve for the industry’s output is
given by p = 208 − 4q, where q is total industry output. Each firm has zero marginal cost. The leader
chooses his quantity first, knowing that the follower will observe the leader’s choice and choose his
quantity to maximize profits, given the quantity produced by the leader. The leader will choose an
output of
a.
26.
b.
17.33.
c.
13.
d.
52.
e.
None of the above.
39. A monopolist faces a constant marginal cost of $1 per unit and has no fixed costs. If the price elasticity
of demand for this product is constant and equal to −3, then
a.
to maximize profits, he should charge a price of $1.50.
b.
to maximize profits, he should charge a price of $3.
c.
to maximize profits, he should charge a price of $1.33.
d.
he is not maximizing profits.
e.
None of the above.
40. A monopolist faces a constant marginal cost of $1 per unit and has no fixed costs. If the price elasticity
of demand for this product is constant and equal to −4, then
a.
to maximize profits, he should charge a price of $4.
b.
he is not maximizing profits.
c.
to maximize profits, he should charge a price of $1.33.
d.
to maximize profits, he should charge a price of $1.25.
e.
None of the above.
41. A profit-maximizing monopolist has the cost schedule c(y) = 20y. The demand for her product is given
by y = 600/p4, where p is her price. Suppose that the government tries to get her to increase her output
by giving her a subsidy of $15 for every unit that she sells. Giving her the subsidy would make her
a.
decrease her price by $7.50.
b.
decrease her price by $15.
c.
decrease her price by $20.
d.
decrease her price by $35.
e.
leave her price unchanged.
42. A profit-maximizing monopolist has the cost schedule c(y) = 40y. The demand for her product is given
by y = 600/p4, where p is her price. Suppose that the government tries to get her to increase her output
by giving her a subsidy of $21 for every unit that she sells. Giving her the subsidy would make her
a.
decrease her price by $49.
b.
decrease her price by $28.
c.
decrease her price by $10.50.
d.
decrease her price by $21.
e.
leave her price unchanged.
43. A profit-maximizing monopolist faces a demand function given by q = 1000 − 20p, where p is the
price of her output in dollars. She has a constant marginal cost of 20 dollars per unit of output. In an
effort to induce her to increase her output, the government agrees to pay her a subsidy of $10 for every
unit that she produces. She will
a.
increase her price and lower her output.
b.
decrease her price by $5 per unit.
c.
decrease her price by $10 per unit.
d.
decrease her price by more than $10 per unit but by less than $16 per unit.
e.
decrease her price by more than $16 per unit.
44. A firm has discovered a new kind of nonfattening, non-habit-forming dessert called zwiffle. It doesn’t
taste very good, but some people like it and it can be produced from old newspapers at zero marginal
cost. Before any zwiffle could be produced, the firm would have to spend a fixed cost of $F. Demand
for zwiffle is given by the equation q = 12 − p. The firm has a patent on zwiffle, so it can have a
monopoly in this market.
a.
The firm will produce zwiffle only if F is less than or equal to 36.
b.
The firm will not produce zwiffle if F 12.
c.
The firm will produce 12 units of zwiffle.
d.
The firm will produce 9 units of zwiffle.
e.
None of the above.
45. A firm has discovered a new kind of nonfattening, non-habit-forming dessert called zwiffle. It doesn’t
taste very good, but some people like it and it can be produced from old newspapers at zero marginal
cost. Before any zwiffle could be produced, the firm would have to spend a fixed cost of $F. Demand
for zwiffle is given by the equation q = 20 − p. The firm has a patent on zwiffle, so it can have a
monopoly in this market.
a.
The firm will not produce zwiffle if F 20.
b.
The firm will produce zwiffle only if F is less than or equal to 100.
c.
The firm will produce 15 units of zwiffle.
d.
The firm will produce 20 units of zwiffle.
e.
None of the above.
46. A firm has invented a new beverage called Slops. It doesn’t taste very good, but it gives people a
craving for Lawrence Welk’s music and Professor Johnson’s jokes. Some people are willing to pay
money for this effect, so the demand for Slops is given by the equation q = 14 − p. Slops can be made
at zero marginal cost from old-fashioned macroeconomics books dissolved in bathwater. But before
any Slops can be produced, the firm must undertake a fixed cost of $54. Since the inventor has a patent
on Slops, it can be a monopolist in this new industry.
a.
The firm will produce 7 units of Slops.
b.
A Pareto improvement could be achieved by having the government pay the firm a
subsidy of $59 and insisting that the firm offer Slops at zero price.
c.
From the point of view of social efficiency, it is best that no Slops be produced.
d.
The firm will produce 14 units of Slops.
e.
None of the above.
47. A firm has invented a new beverage called Slops. It doesn’t taste very good, but it gives people a
craving for Lawrence Welk’s music and Professor Johnson’s jokes. Some people are willing to pay
money for this effect, so the demand for Slops is given by the equation q = 10 − p. Slops can be made
at zero marginal cost from old-fashioned macroeconomics books dissolved in bathwater. But before
any Slops can be produced, the firm must undertake a fixed cost of $30. Since the inventor has a patent
on Slops, it can be a monopolist in this new industry.
a.
The firm will produce 5 units of Slops.
b.
The firm will produce 10 units of Slops.
c.
From the point of view of social efficiency, it is best that no Slops be produced.
d.
A Pareto improvement could be achieved by having the government pay the firm a
subsidy of $35 and insisting that the firm offer Slops at zero price.
e.
None of the above.
48. The demand for Professor Bongmore’s new book is given by the function Q = 2,000 − 100p. If the cost
of having the book typeset is $7,000, if the marginal cost of printing an extra copy is $4, and if he has
no other costs, then he would maximize his profits by
a.
having it typeset and selling 800 copies.
b.
having it typeset and selling 1,000 copies.
c.
not having it typeset and not selling any copies.
d.
having it typeset and selling 1,600 copies.
e.
having it typeset and selling 400 copies.
49. The demand for Professor Bongmore’s new book is given by the function Q = 5,000 − 100p. If the cost
of having the book typeset is $9,000, if the marginal cost of printing an extra copy is $4, and if he has
no other costs, then he would maximize his profits by
a.
not having it typeset and not selling any copies.
b.
having it typeset and selling 2,500 copies.
c.
having it typeset and selling 4,600 copies.
d.
having it typeset and selling 2,300 copies.
e.
having it typeset and selling 1,150 copies.
50. Peter Morgan sells pigeon pies from his pushcart in Central Park. Due to the abundant supplies of raw
materials, his costs are zero. The demand schedule for his pigeon pies is p(y) = 150 − y/3. What level
of output will maximize Peter’s profits?
a.
225
b.
45
c.
450
d.
675
e.
None of the above
51. Peter Morgan sells pigeon pies from his pushcart in Central Park. Due to the abundant supplies of raw
materials, his costs are zero. The demand schedule for his pigeon pies is p(y) = 80 − y/4. What level of
output will maximize Peter’s profits?
a.
164
b.
480
c.
32
d.
320
e.
None of the above
52. A profit-maximizing monopoly faces an inverse demand function described by the equation
p(y) = 40 − y and its total costs are c(y) = 7y, where prices and costs are measured in dollars. In the
past it was not taxed, but now it must pay a tax of 6 dollars per unit of output. After the tax, the
monopoly will
a.
increase its price by 6 dollars.
b.
increase its price by 9 dollars.
c.
increase its price by 3 dollars.
d.
leave its price constant.
e.
None of the above.
53. A profit-maximizing monopoly faces an inverse demand function described by the equation
p(y) = 30 − y and its total costs are c(y) = 5y, where prices and costs are measured in dollars. In the
past it was not taxed, but now it must pay a tax of 2 dollars per unit of output. After the tax, the
monopoly will
a.
increase its price by 3 dollars.
b.
increase its price by 2 dollars.
c.
increase its price by 1 dollars.
d.
leave its price constant.
e.
None of the above.
54. A monopolist faces the demand function Q = 7,000/(p + 3)−2. If she charges a price of p, her marginal
revenue will be
a.
p/2 + 3.
b.
2p + 1.50.
c.
p/2 − 3/2.
d.
−2(p + 3)−3.
e.
(p + B)−2.
55. A monopolist faces the demand function Q = 4,000/(p + 6)−2. If she charges a price of p, her marginal
revenue will be
a.
p/2 + 6.
b.
−2(p + 6)−3.
c.
2/p + 3.
d.
p/2 − 6/2.
e.
(p + B)−2.
56. The demand for copies of the software package Macrosoft Doors is given by Q = 10,000P−2. The cost
to produce Doors is C = 100,000 + 5Q. If Macrosoft practices cost plus pricing, what would be the
profit-maximizing markup?
a.
100%
b.
33.33%
c.
14.29%
d.
6.67%
e.
3.23%
57. The demand for copies of the software package Macrosoft Doors is given by Q = 10,000P−2. The cost
to produce Doors is C = 100,000 + 5Q. If Macrosoft practices cost plus pricing, what would be the
profit-maximizing markup?
a.
6.67%
b.
100%
c.
14.29%
d.
33.33%
e.
3.23%
58. A major software developer has estimated the demand for its new personal finance software package
to be Q = 1,000,000P−1.40 while the total cost of the package is C = 100,000 + 20Q. If this firm wishes
to maximize profit, what percentage markup should it place on this product?
a.
220%
b.
290%
c.
250%
d.
190%
e.
300%
59. A major software developer has estimated the demand for its new personal finance software package
to be Q = 1,000,000P−2 while the total cost of the package is C = 100,000 + 25Q. If this firm wishes to
maximize profit, what percentage markup should it place on this product?
a.
90%
b.
100%
c.
20%
d.
40%
e.
250%
60. The Fabulous 50s Decor Company is the only producer of pink flamingo lawn statues. While business
is not as good as it used to be, in recent times the annual demand has been Q = 400 − 6P. Flamingo
lawn statues are handcrafted by artisans using the process Q = minL, P/2 where L is hours of labor
and P is pounds of pink plastic. PL = 15 and PP = 3. What would be the profit-maximizing output and
price?
a.
Q = 179 and P = 36.83.
b.
Q = 192.25 and P = 34.63.
c.
Q = 199.42 and P = 33.43.
d.
Q = 101 and P = 49.83.
e.
Q = 202 and P = 33.
61. The Fabulous 50s Decor Company is the only producer of pink flamingo lawn statues. While business
is not as good as it used to be, in recent times the annual demand has been Q = 700 − 5P. Flamingo
lawn statues are handcrafted by artisans using the process Q = minL, P/7 where L is hours of labor
and P is pounds of pink plastic. PL = 20 and PP = 2. What would be the profit-maximizing output and
price?
a.
Q = 265 and P = 87.
b.
Q = 330 and P = 74.
c.
Q = 339.86 and P = 72.03.
d.
Q = 349.43 and P = 70.11.
e.
Q = 530 and P = 34.
62. An obscure inventor in Strasburg, North Dakota, has a monopoly on a new beverage called Bubbles,
which produces an unexplained craving for Lawrence Welk music. Bubbles is produced by the
following process: Q = minR/2, W, where R is pulverized Lawrence Welk records and W is gallons
of North Dakota well water. PR = PW = $1. Demand for Bubbles is Q = 576P−2A0.5. If the advertising
budget for Bubbles is $81, the profit-maximizing quantity of Bubbles is
a.
0.
b.
36.
c.
432.
d.
144.
e.
140.
63. An obscure inventor in Strasburg, North Dakota, has a monopoly on a new beverage called Bubbles,
which produces an unexplained craving for Lawrence Welk music. Bubbles is produced by the
following process: Q = minR/3, W, where R is pulverized Lawrence Welk records and W is gallons
of North Dakota well water. PR = PW = $1. Demand for Bubbles is Q = 1,024P−2A0.5. If the advertising
budget for Bubbles is $100, the profit-maximizing quantity of Bubbles is
a.
640.
b.
40.
c.
0.
d.
160.
e.
156.
64. The Cleveland Visitors Bureau is the exclusive national marketer of weekend getaway vacations in
Cleveland, Ohio. At current market prices, the price elasticity of demand is −1. To maximize profits,
the bureau should
a.
raise prices.
b.
lower prices.
c.
not change prices.
d.
run new TV commercials.
e.
More information is needed to make an accurate judgment.
65. The Cleveland Visitors Bureau is the exclusive national marketer of weekend getaway vacations in
Cleveland, Ohio. At current market prices, the price elasticity of demand is −.50. To maximize profits,
the bureau should
a.
not change prices.
b.
run new TV commercials.
c.
lower prices.
d.
raise prices.
e.
More information is needed to make an accurate judgement.
66. In some parts of the world, Red Lizzard Wine is alleged to increase one’s longevity. It is produced by
the process Q = min(1/3)L, R, where L is the number of spotted red lizards and R is gallons of rice
wine. PL = PR = $1. Demand for Red Lizzard Wine in the United States is Q = 576P−2 A1/2. If the
advertising budget is $121, the quantity of wine which should be imported into the United States is
a.
0 gallons.
b.
33 gallons.
c.
396 gallons.
d.
99 gallons.
e.
95 gallons.
67. In some parts of the world, Red Lizzard Wine is alleged to increase one’s longevity. It is produced by
the process Q = min(1/4)L, R, where L is the number of spotted red lizards and R is gallons of rice
wine. PL = PR = $1. Demand for Red Lizzard Wine in the United States is Q = 900P−2 A1/2. If the
advertising budget is $144, the quantity of wine which should be imported into the United States is
a.
540 gallons.
b.
108 gallons.
c.
0 gallons.
d.
36 gallons.
e.
104 gallons.
PROBLEM
1. A baseball teams attendance depends on the number of games it wins per season and on the price of its
tickets. The demand function it faces is Q = N(20 − p), where Q is the number of tickets (in hundred
thousands) sold per year, p is the price per ticket, and N is the fraction of its games that the team wins.
The team can increase the number of games it wins by hiring better players. If the team spends C
million dollars on players, it will win .7 − 1/C of its games. Over the relevant range, the marginal cost
of selling an extra ticket is zero.
a. Write an expression for the firms profits as a function of ticket price and expenditure on players.
b. Find the ticket price that maximizes revenue.
c. Find the profit-maximizing expenditure on players and the profit–maximizing fraction of games to
win.