CHAPTER 13
1.1 This does not necessarily constitute a monopoly. Even though Vincent has the only 7-Eleven in
2.1 (a) Disagree. A monopolist chooses quantity so that sets MC = MR, but then charges a price
(b) Disagree. Demand still constrains monopoly. There are always substitutes (however distant)
(c) Agree. Demand elasticity is equal to –1 at the midpoint of the demand curve, and the
2.2 A competitive firm can sell all the output it wants without having any impact on market price. For
2.3 (a)
(b)
(c)
2014 price is
P
1
; output is
Q
1
.
TR P AQ
2 2
0
;
TC CBQ
2
0
;Total profit
=
P ABC
2
.
Point E is the perfectly competitive
(d) The memo should mention that under the monopoly, the price is higher and output lower than
303
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B
MR
Units of output
Solutions to Problems 304
2.4
Interval Marginal Revenue
0-10 +120
2.5 (a) Optimal output q*
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Price per unit
Units of output
Solutions to Problems 305
2.6 (a)
Q
*
,10 000
(b)
(c)
TR   $4 , $40,10000 000
(d)
TC ATC Q   $5 , $50,10 000 000
(e) Profit =
TR TC $10,000
(a loss of $10,000).
2.7 (a, b)
(c) Profit-maximizing output is 900; profit-maximizing price is $5.50.
2.8 With paid prioritization, companies with large advertising budgets would be able to pay internet
2.9 Toyota could have arrived at the price of the Prius by conducting focus groups to get the group’s
idea of how much they would be willing to pay for this car or they could have looked at the price
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Price per unit
Solutions to Problems 306
2.10 A monopoly is a single-firm industry that has a product for which there are no close substitutes
2.11 A supply curve shows the relationship between the price of a product and the quantity of the
3.1 Total revenue for the competitive firm = $250 x 5,000 = $1,250,000.
Profit for the monopoly =
Consumer surplus under
Deadweight loss from
Remedies might include:
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Solutions to Problems 307
4.1 (a) Profit = ($45 − $30) x 300 = $4,500
(b) With perfect price discrimination, the demand curve becomes the marginal revenue curve.
4.2 Las Vegas’s largest industry is tourism, so there are a large number of hotels, restaurants,
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Solutions to Problems 308
5.1 Answers will vary, but may include information such as the following in addressing the three
questions:
What private suits have been brought against Google? Two of the antitrust suits filed against
What are the benefits of a strong, profitable Google? A strong, profitable Google means continued
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