Economics-Connect Assignment Part 2

Which of the following statements is
NOT correct about monopoly?

Multiple Choice
 A monopolist generally faces a downward-sloping demand curve.
 Monopolists always make positive profits in the long run.
 A monopoly may make negative profits in the short run.
 There is no close substitute for a monopoly's product
Multiple Choice
 a horizontal line at $55.
 P = 100 − 5Q.
 P/N = (100 − 5Q)/N, where N is the total number of firms in the competitive
market.
Which of the following is true under monopoly?
Multiple Choice
 P = MR.
 All of the choices are true for monopoly.
 P > MC.
 Profits are always positive.

The number of efficient plants compatible with domestic consumption of the
refrigerator industry in Sweden is 0.7. Which of the following implications is(are)
correct?
Multiple Choice
 The refrigerator industry in Sweden is monopolistically competitive.
 The refrigerator industry in Sweden is perfectly competitive.
 In the absence of imports, the refrigerator industry in Sweden is

monopolistic.
 None of the answers is correct.

You are the manager of a monopoly that faces a demand curve described by P = 230
− 20Q. Your costs are C = 5 + 30Q. The profit-maximizing price is:
Multiple Choice
 110.
 130.
 90.
 150.
Consider a monopoly where the inverse demand for its product is given by P = 50 −
2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At the
profit-maximizing combination of output and price, consumer surplus is:
Multiple Choice
 $32.
 cannot be determined with the given information.
 $64.
 $128.
Firms have market power in:
Multiple Choice
 monopolistic markets.
 monopolistically competitive markets.
 perfectly competitive markets.
 monopolistically competitive markets and monopolistic markets.

There is no market supply curve in:
Multiple Choice
 a monopolistic market.
 a monopolistically competitive market.
 a perfectly competitive market.

 monopolistically competitive and monopolistic markets.
You are the manager of a firm that sells its product in a competitive market at a price
of $50. Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are:
Multiple Choice
 85.
 100.
 125.
 250.
2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 20Q + Q2. At
the profit-maximizing combination of output and price, deadweight loss is:
Multiple Choice
 $30.
 $50.
 Cannot be determined with the given information.
 $80.
You are the manager of a firm that produces output in two plants. The demand for
your firm's product is P = 78 − 15Q, where Q = Q1 + Q2. The marginal costs
associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How
much output should be produced in plant 1 in order to maximize profits?
Multiple Choice
 3
 4
 2
 1
A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 =
30 + 0.05Q22. The demand it faces is Q = 500 − 10P. What is the condition for profit
maximization?
Multiple Choice
 MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).
 MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2).
 MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
 MC1(Q1) = MC2(Q2) = P(Q1 + Q2).
The second-order condition for a firm maximizing its profit operating in a
monopolistically competitive market is:
Multiple Choice
 (dMR/dQ) > (dMC/dQ).
 (d2R (Q)/dQ2) − (d2C(Q)/dQ2) < 0.

 −(d2C(Q)/dQ2) < 0.
 (d2R (Q)/dQ2) = (d2C(Q)/dQ2).
50 + 0.1Q22. The demand it faces is Q = 480 − 5P. What is the profit-maximizing
price?
Multiple Choice
 $60 per unit
 $45 per unit
 $50 per unit
 $40 per unit

Multiple Choice
 450.
 500.
 400.
 250.
A monopoly has produced a product with a patent for the last few years. The patent
is going to expire. What will happen after the patent expires?
Multiple Choice
 The incumbent will retain its status as a monopoly but produce at a lower
price.
 The incumbent will leave the market.
 Some firms will enter the industry.

Which of the following statements concerning monopoly is NOT true?
Multiple Choice
 A market may be monopolistic because there are some legal barriers.
 A monopoly is always undesirable.
 There is some deadweight loss in a monopolistic market.
 A monopoly has market power.

Economies of scale exist whenever:
Multiple Choice
 average total costs are stationary as output increases.
 average total costs increase as output increases and average total costs are
stationary as output increases.
 average total costs increase as output increases.
 average total costs decline as output increases.

A monopoly has produced a product with a patent for the last few years. The patent
is going to expire. What will likely happen to the demand for the patent-holder's
product when the patent runs out?
Multiple Choice
 Demand will increase.
 Demand will decline.
 Nothing.
You are the manager of a monopoly that faces a demand curve described by P = 230
− 20Q. Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is:
Multiple Choice
 6.
 5.
 7.
 4.
Multiple Choice
 $576.
 $348.
 $192.
 $228.
You are a manager in a perfectly competitive market. The price in your market is
$14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What will happen in the long
run if there is no change in the demand curve?
Multiple Choice
 Some firms will enter the market eventually.
 There will be neither entry nor exit from the market.
 Some firms will leave the market eventually.

You are the manager of a monopoly firm with (inverse) demand given by P = 50 −
0.5Q. Your firm's cost function is C = 40 + 5Q2. Your firm's marginal revenue is:
Multiple Choice
 P = 50 − 0.5Q.
 P = 100 − Q.
 There is insufficient information to determine the firm's marginal revenue.
 P = 50 − Q.
Which of the following features is common to both perfectly competitive markets
and monopolistically competitive markets?
Multiple Choice
 Prices are equal to marginal costs in the long run.
 Firms produce homogeneous goods.
 Long-run profits are zero.
 Prices are above marginal costs in the long run.

The first-order condition for a firm maximizing its profit operating in a
monopolistically competitive market is:
Multiple Choice
 (dMR/dQ) < (dMC/dQ).
 (dMR/dQ) = (dMC/dQ).
 P − (dC(Q)/dQ) = 0.
 (dR(Q)/dQ) − (dC(Q)/dQ) = 0.
Which of the following formulas correctly measures the profit of a monopoly?
Multiple Choice
 π = TR − TC
 π = TR − TC and π = (P − ATC)Q
 π = (P − AVC)Q
 π = (P − ATC)Q
You are the manager of College Computers, a manufacturer of customized
computers that meet the specifications required by the local university. Over 90
percent of your clientele consists of college students. College Computers is not the
only firm that builds computers to meet this university’s specifications; indeed, it
competes with many manufacturers online and through traditional retail outlets. To
attract its large student clientele, College Computers runs a weekly ad in the
student paper advertising its “free service after the sale” policy in an attempt to
differentiate itself from the competition. The weekly demand for computers
produced by College Computers is given by Q = 800 – 2P, and its weekly cost of
producing computers is C(Q) = 1,200 + 2Q2.
If other firms in the industry sell PCs at $300, what price and quantity of
computers should you produce to maximize your firm’s profits?
Price: $ 360 Numeric Response 1.Edit Unavailable. 360 correct.

Quantity: 80 Numeric Response 2.Edit Unavailable. 80 correct.computers
What long-run adjustments should you anticipate?
multiple choice
 Exit by other firms, increasing your profits.
 Entry by other firms along with increased profits.
 Exit by other firms along with decreased profits.
 Entry by other firms, reducing your profits. Correct
Explanation
College Computers is a monopolistically competitive firm and faces a downward sloping demand for its
product. Thus, you should equate MR = MC to maximize profits. Here, MR = 400 – Q and MC = 4Q.
Setting 400 – Q = 4Q implies that your optimal output is 80 units per week.
Your optimal price is P = 400 – 0.5 × 80 = $360. Your weekly revenues are R = ($360)(80) = $28,800 and
your weekly costs are C = 1,200 + 2(80)2 = $14,000. Your weekly profits are thus $14,800.
You should expect other firms to enter the market; your profits will decline over time and you will lose
market share to other firms.
A firm sells its product in a perfectly competitive market where other firms charge
a price of $90 per unit. The firm’s total costs are C(Q) = 50 + 10Q + 2Q2.
a. How much output should the firm produce in the short run?
20 Numeric Response 1.Edit Unavailable. 20 correct.units
b. What price should the firm charge in the short run?

$ 90 Numeric Response 2.Edit Unavailable. 90 correct.
c. What are the firm’s short-run profits?
d. What adjustments should be anticipated in the long run?
multiple choice
 Entry will occur until economic profits shrink to zero. Correct
 No firms will enter or exit at these profits.
 Exit will occur since these economic profits are too low.
Explanation
a. Set P = MC to get $90 = 10 + 4Q. Solve for Q to get Q = 20 units.
b. $90.
c. Revenues are R = ($90)(20) = $1800, costs are C = 50 + 10(20) + 2(20)2 = $1050, so profits are $750.
d. Entry will occur, the market price will fall, and the firm should plan to reduce its output. In the long-run,
economic profits will shrink to zero.
You are the manager of a monopolistically competitive firm, and your demand and
cost functions are given by Q = 36 – 4P and C(Q) = 4 + 4Q + Q2.
a. Find the inverse demand function for your firm’s product.
P = 9 Numeric Response 1.Edit Unavailable. 9 correct.- 0.25 Numeric

Response 2.Edit Unavailable. 0.25 correct.Q
b. Determine the profit-maximizing price and level of production.
Instruction: Price should be rounded to the nearest penny (two decimal places).
Price: $ 8.50 Numeric Response 3.Edit Unavailable. 8.50 correct.

Quantity: 2 Numeric Response 4.Edit Unavailable. 2 correct.
c. Calculate your firm’s maximum profits.

Instruction: Your response should appear to the nearest penny (two decimal
places).
$ 1.00 Numeric Response 5.Edit Unavailable. 1.00 correct.
d. What long-run adjustments should you expect? Explain.
multiple choice
 Exit will occur until profits rise sufficiently high.
 Neither entry nor exit will occur.
 Entry will occur until profits are zero. Correct
Explanation
a. The inverse linear demand function is P = 9 – .25Q.
b. MR = 9 – .5Q and MC = 4 + 2Q. Setting MR = MC yields 9 – .5Q = 4 + 2Q. Solving for Q yields Q = 2

units. The optimal price is P = 9 – .25(2) = $8.50.
c. Revenues are R = ($8.50)(2) = $17. Costs are C = 4 + 4(2) + (2)2 = $16. Thus the firm earns $1.00.
d. In the long run entry will occur and the demand for this firm’s product will decrease until it earns zero
economic profits.
You are a manager at Spacely Sprockets—a small firm that manufactures Type A
and Type B bolts. The accounting and marketing departments have provided you
with the following information about the per-unit costs and demand for Type A
bolts:

Accounting Data for Type A Bolts Marketing Data for Type A Bolts
Item Unit Cost Quantity Price
Materials and labor $2.75 0 $10
Overhead 5.00 1 9
2 8
Total cost per unit $7.75 3 7
4 6
5 5
Materials and labor are obtained in a competitive market on an as-needed basis,

and the reported costs per unit for materials and labor are constant over the relevant
range of output. The reported unit overhead costs reflect the $10 spent last month
on machines, divided by the projected output of 2 units that was planned when the
machines were purchased. In addition to the above information, you know that the
firm’s assembly line can produce no more than five bolts. Since the firm also
makes Type B bolts, this means that each Type A bolt produced reduces the
number of Type B bolts that can be produced by one unit; the total number of Type
A and B bolts produced cannot exceed 5 units. A call to a reputable source has
revealed that unit costs for producing Type B bolts are identical to those for
producing Type A bolts, and that Type B bolts can be sold at a constant price of
$4.75 per unit.
Determine your relevant marginal cost of producing Type A bolts when deciding
how many Type A and Type B bolts to produce:
Instruction: Enter your response rounded to two decimal places.
Determine your profit-maximizing production of Type A bolts:
3 Numeric Response 2.Edit Unavailable. 3 correct.Type A bolts

Explanation
Note first that overhead costs are irrelevant, as they are a fixed cost. Second, the explicit
(accounting) MC is $2.75. Third, we must consider opportunity cost: By producing Type A bolts we lose
the opportunity to produce type B bolts. Since each Type B bolt produced would net $4.75 - $2.75 = $2,
the implicit MC is $2. Thus, the relevant MC is the sum of these explicit and implicit costs, or $2.75 + $2 =
$4.75.

To determine the profit-maximizing level of Type A bolts to produce, we must compare MR and MC.

Given the marketing data, we can compute the MR as shown in the accompanying table. As shown in the
table, MR > MC up to 3 units, so to maximize profits the firm should produce 3 units of Type A bolts.

M
Quantity Price TR MC
R
4.7
0 10 0 -
5
4.7
1 9 9 9
5
4.7
2 8 16 7
5
4.7
3 7 21 5
5
4.7
4 6 24 3
5
4.7
5 5 25 1
5
You are the general manager of a firm that manufactures personal computers. Due
to a soft economy, demand for PCs has dropped 50 percent from the previous year.
The sales manager of your company has identified only one potential client, who
has received several quotes for 10,000 new PCs. According to the sales manager,
the client is willing to pay $800 each for 10,000 new PCs. Your production line is
currently idle, so you can easily produce the 10,000 units. The accounting
department has provided you with the following information about the unit (or
average) cost of producing three potential quantities of PCs:

10,000 PCs 15,000 PCs 20,000 PCs
Materials (PC components) $600 $600 $600
Depreciation 300 225 150
Labor 150 150 150
Total unit cost $1,050 $975 $900
Based on this information, should you accept the offer to produce 10,000 PCs at
$800 each?
multiple choice
 No.
 Yes. Correct
 You should be just indifferent between accepting and declining.
Explanation
Your average variable cost of producing the 10,000 units is $750 (depreciation is a fixed cost). Since the
price you have been offered ($800) exceeds your average variable cost ($750), you should accept the offer;
doing so adds $50 per unit (for a total of $500,000) to your firm’s bottom line.
The graph below summarizes the demand and costs for a firm that operates in a
monopolistically competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating

numerical responses below.
a. What is the firm’s optimal output?
b. What is the firm’s optimal price?

c. What are the firm’s maximum profits?
d. What adjustments should the manager be anticipating?
multiple choice
 Demand will decrease over time as new firms enter the market. Correct
 Demand will increase over time as firms exit the market.
 Demand will remain unchanged over time.
Explanation
a. 7 units.
b. $130.
c. $140, since ($130 – 110) × 7 = $140.
d. This firm’s demand will decrease over time as new firms enter the market. In the long-run, economic
profits will shrink to zero.
The French government announced plans to convert state-owned power firms EDF
and GDF into separate limited companies that operate in geographically distinct
markets. BBC News reported that France’s CFT union responded by organizing a
mass strike, which triggered power outages in some Paris suburbs. Union workers
are concerned that privatizing power utilities would lead to large-scale job losses
and power outages similar to those experienced in parts of the eastern coast of the
United States and parts of Italy in 2003. Suppose that prior to privatization, the
price per kilowatt hour of electricity was €0.13 and that the inverse demand for
electricity in each of these two regions of France is P = 1.35 – 0.002Q (in euros).
Furthermore, to supply electricity to its particular region of France, it costs each
firm C(Q) = 120 + 0.13Q (in euros). Once privatized, each firm will have incentive
to maximize profits.
Determine the number of kilowatt hours of electricity each firm will produce and
supply to the market, and the per-kilowatt hour price.
Instructions: Enter your price responses rounded to two decimal places.
Quantity of kilowatt hours supplied: 305 Numeric Response 1.Edit

Unavailable. 305 correct.

Per-kilowatt hour price: € 0.74 Numeric Response 2.Edit
Unavailable. 0.74 correct.
Compute the price elasticity of demand at the profit maximizing price–quantity

combination.
-1.21 Numeric Response 3.Edit Unavailable. -1.21 correct.
Does the price elasticity at the profit-maximizing price–quantity combination make

sense?
multiple choice
 No - with linear demand, a monopolist will never maximize profits on the
elastic portion of the demand function.
 Yes - with linear demand, a monopolist will never maximize profit on the
inelastic portion of the demand function. Correct
 Yes - with linear demand, a monopolist can maximize profits on any portion
of the demand function.
 No - with linear demand, a monopolist always maximizes profits where
elasticity is -1.
How much more profit will each firm earn as a result of privatization?
€ 186.05 Numeric Response 4.Edit Unavailable. 186.05 correct.

Explanation
When the two companies are permitted to maximize profit, the equilibrium price in each market will be
€0.74 and produce 305 kilowatts per hour (MR = MC implies 1.35 – 0.004Q = 0.13).

Thus, the price elasticity of demand at the profit-maximizing price-quantity combination is ε = -(1 / 0.002)
(0.74 / 305) = -1.21.

This price elasticity of demand makes sense because a monopolist with linear demand will never maximize
profit on the inelastic portion of the demand function. Prior to privatization the price-quantity combination
was P = €0.13 and Q = 610 and profits are – €120 in each market. The state-owned facility is losing its
fixed costs.

Privatization will increase the price and reduce the amount of electricity generated in each market: P
= €0.74 and Q = 305. Each firm will earn €66.05. Thus, each firm will earn €186.05 more in each market
as a result of privatization; since €66.05 – (– €120) = €186.05.
A firm sells its product in a perfectly competitive market where other firms charge
a price of $130 per unit. The firm’s total costs are C(Q) = 40 + 10Q + 2Q2.
a. How much output should the firm produce in the short run?
b. What price should the firm charge in the short run?
c. What are the firm’s short-run profits?
d. What adjustments should be anticipated in the long run?
multiple choice
 Entry will occur until economic profits shrink to zero. Correct
 No firms will enter or exit at these profits.
 Exit will occur since these economic profits are too low.
Explanation
a. Set P = MC to get $130 = 10 + 4Q. Solve for Q to get Q = 30 units.
b. $130.
c. Revenues are R = ($130)(30) = $3900, costs are C = 40 + 10(30) + 2(30)2 = $2140, so profits are $1760.
d. Entry will occur, the market price will fall, and the firm should plan to reduce its output. In the long-run,
economic profits will shrink to zero.
$14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What level of profits will you
make in the short run?
Multiple Choice
 $40
 $80
 $20
 $60
Compute the marginal revenue when the price elasticity of demand is −0.25.
Multiple Choice
 −0.33P, meaning that marginal revenue is negative and one-third of the
price.
 −3P, meaning marginal revenue is negative and 3 times greater than price.
 3P, meaning marginal revenue is positive and 3 times greater than price.
 −0.25P, meaning that marginal revenue is negative and one-fourth of the

price.
Consider firms operating in an industry where the own price elasticity of demand is
infinite; that is,
Use this information to determine the type of industry in which these firms
operate and the optimal advertising-to-sales ratio.
Multiple Choice
 Monopolistic industry and 0
 Perfectly competitive industry and 0
 Perfectly competitive industry and graphicExpand image

 Monopolistically competitive industry and graphicExpand image
If a monopolistically competitive firm's marginal cost increases, then in order to

maximize profits, the firm will:
Multiple Choice
 increase output and decrease price.
 reduce both output and price.
 reduce output and increase price.
 increase both output and price.
Which of the following is true under monopolistic competition in the long run?
Multiple Choice
 All of the choices are true in monopolistic competition.
 P = MR.
 Profits are always zero.
 P = MC.
Let the demand function for a product be Q = 50 − 5P. The inverse demand function
of this demand function is:
Multiple Choice
 P = 10 + 0.2Q
 Q = 25 + P
 P = 50 − 0.2Q
 P = 10 − 0.2Q
A perfectly competitive firm faces a:
Multiple Choice
 perfectly inelastic demand function.
 demand function with unitary elasticity.
 perfectly elastic demand function.
You are the manager of a monopoly that faces a demand curve described by P = 10 −
2Q. Your costs are C = 20 + 2Q. The revenue-maximizing output is:
Multiple Choice
 3.
 4.

 1.5.
of $60. Your firm's cost function is C = 33 + 3Q2. The profit-maximizing output for
your firm is:
Multiple Choice
 5.
 10.
 3.
 6.
Let the demand function for a product be Q = 100 − 2P. The inverse demand
function of this demand function is:
Multiple Choice
 Q = 100 + 2P.
 P = 50 + 0.5Q.
 P = 50 − 0.5Q.
Suppose a monopolist knows the own price elasticity of demand for its product is −3
and that its marginal cost of production is constant MC(Q) = 10. To maximize its
profit, the monopoly price is:
Multiple Choice
 $15 per unit.
 $10 per unit.
 $6.67 per unit.
 $1.50 per unit
In a monopoly where the marginal revenue and price are, respectively, given by $10
and $20, the price elasticity of demand is:
Multiple Choice
 Cannot be determined based on the information in the question.
 −2.
 −0.5.
 −1.
Multiple Choice
 450.
 500.
 400.
 250.
Differentiated goods are a feature of a:
Multiple Choice
 perfectly competitive market.
 monopolistically competitive market.
 monopolistically competitive market and monopolistic market.
 monopolistic market.
The source(s) of monopoly power for a monopoly may be:
Multiple Choice
 All of the statements associated with this question are correct.
 economies of scale.
 patents.
 economies of scope.
associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What
price should be charged in order to maximize revenues?
rev: 12_06_2019_QC_CS-192944
Multiple Choice
 $40.50
 $52
 $47
 $56
price should be charged in order to maximize revenues?
Multiple Choice
 2
 24
 60
 6
Which of the following is an example of monopoly?
Multiple Choice
 Shoe industry in the United States
 Local utility industry in a small town
 Newspaper industry in New York City
 Bread industry in New York City

30 + 0.05Q22. The demand it faces is Q = 500 − 10P. What is the condition for profit
maximization?
Multiple Choice
 MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2).
 MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2).
 MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
 MC1(Q1) = MC2(Q2) = P(Q1 + Q2).
In a monopoly where the marginal revenue and price are, respectively, given by $3
and $6, the price elasticity of demand is:
Multiple Choice
 −2.
 −1.
 −0.5.
 −1.5.
The diagram below shows the demand, marginal revenue, and marginal cost of a
monopolist.

a. Determine the profit-maximizing output and price.
Profit-maximizing output: 3 Numeric Response 1.Edit

Unavailable. 3 correct.units

Profit-maximizing price: $ 70 Numeric Response 2.Edit Unavailable. 70 correct.
b. What price and output would prevail if this firm’s product was sold by price-
taking firms in a perfectly competitive market?

Output: 4 Numeric Response 4.Edit Unavailable. 4 correct.units
c. Calculate the deadweight loss of this monopoly.

Explanation
a. Q = 3 units; P = $70.
b. Q = 4 units; P = $60.
c. DWL = (1/2)($70 - $40)(4-3) = $15.
The graph below summarizes the demand and costs for a firm that operates in a
perfectly competitive market.
Instruction: Use the nearest whole numbers on the graph when calculating
numerical responses below.

a. What level of output should this firm produce in the short run?
b. What price should this firm charge in the short run?
c. What is the firm’s total cost at this level of output?
d. What is the firm’s total variable cost at this level of output?
e. What is the firm’s fixed cost at this level of output?
f. What is the firm’s profit if it produces this level of output?
Instruction: If the firm is taking a loss, enter this as negative (-) profits.
$ -28 Numeric Response 6.Edit Unavailable. -28 correct.
g. What is the firm’s profit if it shuts down?
Instruction: If the firm is taking a loss, enter this as negative (-) profits.
$ -126 Numeric Response 7.Edit Unavailable. -126 correct.
h. In the long run, should this firm continue to operate or shut down?
Shut down Correct

Explanation
a. 7 units.
b. $28.
c. $224, since $32 × 7 = $224.
d. $98, since $14 × 7 = $98.
e. $126 (the difference between total cost and variable cost).
f. It is earning a loss of $28, since ($28 -$3 2) × 7 = - $28.
g. - $126, since its loss will equal its fixed costs.
h. Shut down.
In a statement to Gillette’s shareholders, its CEO indicated, “Despite several new

product launches, Gillette’s advertising-to-sales declined dramatically . . . to 7.5
percent last year. Gillette’s advertising spending, in fact, is one of the lowest in our
peer group of consumer product companies.”
If the elasticity of demand for Gillette’s consumer products is similar to other firms
in its peer group (which averages -4.5), what is Gillette’s advertising elasticity?
0.34 Numeric ResponseEdit Unavailable. 0.34 correct.
Is Gillette’s demand more or less responsive to advertising than other firms in its
peer group?
multiple choice
 Less responsive. Correct
 It responds the same.
 More responsive.
Explanation
A / R = EQ,A / (-EQ,P) → 0.075 = EQ,A / (4.5) → EQ,A = (0.075)(4.5) = 0.34. Thus, Gillette’s advertising
elasticity is 0.34.
Gillette’s demand is less responsive to advertising than its rivals; their lower advertising-to-sales ratio
implies a smaller advertising elasticity.
A monopolist’s inverse demand function is P = 150 – 3Q. The company produces
output at two facilities; the marginal cost of producing at facility 1 is MC1(Q1) =
6Q1, and the marginal cost of producing at facility 2 is MC2(Q2) = 2Q2.
a. Provide the equation for the monopolist’s marginal revenue function.

(Hint: Recall that Q1 + Q2 = Q.)
MR(Q) = 150 Numeric Response 1.Edit Unavailable. 150 correct.- 6 Numeric

Response 2.Edit Unavailable. 6 correct.Q1 - 6 Numeric Response 3.Edit
Unavailable. 6 correct.Q2
b. Determine the profit-maximizing level of output for each facility.
Output for facility 1: 5 Numeric Response 4.Edit Unavailable. 5 correct.

Output for facility 2: 15 Numeric Response 5.Edit Unavailable. 15 correct.
c. Determine the profit-maximizing price.

Explanation
a. Since the inverse demand is P = 150 – 3Q1 – 3Q2, marginal revenue is MR(Q) = 150 – 6Q1 – 6Q2.
b. Solving these two equations simultaneously yields Q1 = 5 and Q2 = 15.

150 – 6Q1 – 6Q2 = 6Q1
150 – 6Q1 – 6Q2 = 2Q2
c. Given Q1 = 5 and Q2 = 15, P = 150 – 15 – 45 = $90.
Which of the following market structures would you expect to yield the greatest
product variety?
Multiple Choice
 Monopoly
 Monopolistic competition
 Perfect competition
 Bertrand oligopoly
In a competitive industry with identical firms, long-run equilibrium is characterized
by:
Multiple Choice
 P < AVC.
 P > min ATC.
 MR = MC = min ATC.
 MR < P.
Which of the following industries is best characterized as monopolistically
competitive?
Multiple Choice
 Cereal
 Crude oil
 Local electricity service
 Wheat
The primary difference between monopolistic competition and perfect competition
is:
Multiple Choice
 the number of firms in the market.
 the ease of entry and exit into the industry.
 Both the ease of entry and exit into the industry and the number of firms in
the market are correct.
your firm's product is P = 20 − Q, where Q = Q1 + Q2. The marginal costs associated
with producing in the two plants are MC1 = 2 and MC2 = 2Q2. How much output
should be produced in plant 1 in order to maximize profits?
Multiple Choice
 4
 11
 1
 8
Clark Industries currently spends 5 percent of its sales on advertising. Suppose that
the elasticity of advertising for Clark is 0.25. Determine the optimal profit margin
over price (P − MC)/P.
Multiple Choice
 20 percent.
 15 percent.
 25 percent.
Suppose that initially the price is $50 in a perfectly competitive market. Firms are
making zero economic profits. Then the market demand shrinks permanently, some
firms leave the industry, and the industry returns to a long-run equilibrium. What
will be the new equilibrium price, assuming cost conditions in the industry remain
constant?
Multiple Choice
 $50
 Larger than $45, but exact value cannot be known without more
information.
 $45
 Lower than $50, but exact value cannot be known without more
information.
Which of the following is true under monopolistic competition in the short run?
Multiple Choice
 All of the choices are true in monopolistic competition.
 P = MR.
 P > MC.
 Profits are always zero.

5Q. Based on this information, the marginal revenue function is:
Multiple Choice
 MR(Q) = 200 − 10Q.
 MR(Q) = 400 − 2.5Q.
 MR(Q) = 200 − 2.5Q.
 MR(Q) = 400 − 10Q.

John provides cheese (H) and milk (M) to the market with the following total cost
function C(H, M) = 8 + 0.5H2 + 0.1M2. The prices of cheese and milk in the market
are $3 and $4 respectively. Assume that the cheese and milk markets are perfectly
competitive. What output of milk maximizes profits?
Multiple Choice
 30
 10
 20
 40
Suppose perfectly competitive market conditions are characterized by the following
inverse demand and inverse supply functions: P = 100 − 5Q and P = 10 + 5Q. The
demand curve facing an individual firm operating in this market is:
Multiple Choice
 P = 100 − 5Q.
 P/N = (100 − 5Q)/N, where N is the total number of firms in the competitive
market.
You are a manager for a monopolistically competitive firm. From experience, the
profit-maximizing level of output of your firm is 100 units. However, it is expected
that prices of other close substitutes will fall in the near future. How should you
adjust your level of production in response to this change?
Multiple Choice
 Produce less than 100 units.
 Produce 100 units.

 Produce more than 100 units.
 Insufficient information to decide.

Which of the following is(are) basic feature(s) of a perfectly competitive industry?
Multiple Choice
 There is free entry and exit in the market.
 Buyers and sellers have perfect information.
 There are no transaction costs.

5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is:
Multiple Choice
 5.
 4.
 6.
 3.
A linear demand function exhibits:
Multiple Choice
 constant demand elasticity.
 less elastic demand as output increases.
 more elastic demand as output increases.
 insufficient information to determine.

in its peer group (which averages –4), what is Gillette’s advertising elasticity?
Instruction: Enter your response rounded to one decimal place.
Advertising elasticity: 0.3 Numeric ResponseEdit Unavailable. 0.3 correct.
peer group?
multiple choice
Explanation
A / R = EQ,A / (-EQ,P) → 0.075 = EQ,A / 4 → EQ,A = (0.075)(4) = 0.3. Thus, Gillette’s advertising elasticity is
0.3.
The manager of a local monopoly estimates that the elasticity of demand for its
product is constant and equal to –3. The firm’s marginal cost is constant at $20 per
unit.
a. Express the firm’s marginal revenue as a function of its price.
MR = 0.67 Numeric Response 1.Edit Unavailable. 0.67 correct.× P
b. Determine the profit-maximizing price.
Instruction: Use the rounded value calculated above and round your response to
two decimal places.

Explanation
a. Based on a price elasticity of demand of -3, the monopolist’s marginal revenue is MR = P((1-3) / (-3)) =
(2/3)P = (0.67)P.
b. Since the monopolist maximizes profits where MR = MC, the profit-maximizing price can be obtained
by solving the following equation: (2/3) × P = 20, so P = $30. (Note: If you had to round your answer in
part a, and used the rounded version, your answer will be slightly different).
The French government announced plans to convert state-owned power firms EDF
and GDF into separate limited companies that operate in geographically distinct
markets. BBC News reported that France’s CFT union responded by organizing a
mass strike, which triggered power outages in some Paris suburbs. Union workers
are concerned that privatizing power utilities would lead to large-scale job losses
and power outages similar to those experienced in parts of the eastern coast of the
United States and parts of Italy in 2003. Suppose that prior to privatization, the
price per kilowatt hour of electricity was €0.13 and that the inverse demand for
electricity in each of these two regions of France is P = 1.35 – 0.002Q (in euros).
Furthermore, to supply electricity to its particular region of France, it costs each
firm C(Q) = 120 + 0.13Q (in euros). Once privatized, each firm will have incentive
to maximize profits.
Determine the number of kilowatt hours of electricity each firm will produce and
supply to the market, and the per-kilowatt hour price.
Instructions: Enter your price responses rounded to two decimal places.
Quantity of kilowatt hours supplied: 305 Numeric Response 1.Edit


Per-kilowatt hour price: € 0.74 Numeric Response 2.Edit
Unavailable. 0.74 correct.
Compute the price elasticity of demand at the profit maximizing price–quantity

combination.
-1.21 Numeric Response 3.Edit Unavailable. -1.21 correct.
Does the price elasticity at the profit-maximizing price–quantity combination make

sense?
multiple choice
 Yes - with linear demand, a monopolist can maximize profits on any portion
of the demand function.
 Yes - with linear demand, a monopolist will never maximize profit on the
inelastic portion of the demand function. Correct
 No - with linear demand, a monopolist always maximizes profits where
elasticity is -1.
 No - with linear demand, a monopolist will never maximize profits on the
elastic portion of the demand function.
How much more profit will each firm earn as a result of privatization?
€ 186.05 Numeric Response 4.Edit Unavailable. 186.05 correct.

Explanation
When the two companies are permitted to maximize profit, the equilibrium price in each market will be
€0.74 and produce 305 kilowatts per hour (MR = MC implies 1.35 – 0.004Q = 0.13).

Thus, the price elasticity of demand at the profit-maximizing price-quantity combination is ε = -(1 / 0.002)
(0.74 / 305) = -1.21.

This price elasticity of demand makes sense because a monopolist with linear demand will never maximize
profit on the inelastic portion of the demand function. Prior to privatization the price-quantity combination
was P = €0.13 and Q = 610 and profits are – €120 in each market. The state-owned facility is losing its
fixed costs.

Privatization will increase the price and reduce the amount of electricity generated in each market: P
= €0.74 and Q = 305. Each firm will earn €66.05. Thus, each firm will earn €186.05 more in each market
as a result of privatization; since €66.05 – (– €120) = €186.05.
You are the manager of a monopoly, and your demand and cost functions are given
by P = 300 – 3Q and C(Q) = 1,500 + 2Q2, respectively.
a. What price–quantity combination maximizes your firm’s profits?

Quantity: 30 Numeric Response 2.Edit Unavailable. 30 correct.units
b. Calculate the maximum profits.
$ 3,000 Numeric Response 3.Edit Unavailable. 3,000 correct.
c. Is demand elastic, inelastic, or unit elastic at the profit-maximizing price–

quantity combination?
multiple choice 1
 Inelastic
 Unit elastic
 Elastic Correct
d. What price–quantity combination maximizes revenue?

Quantity: 50 Numeric Response 5.Edit Unavailable. 50 correct.units
e. Calculate the maximum revenues.
f. Is demand elastic, inelastic, or unit elastic at the revenue-maximizing price–

quantity combination?
multiple choice 2
 Inelastic
 Elastic
 Unit elastic Correct
Explanation
a. MR = 300 – 6Q and MC = 4Q. Setting MR = MC yields 300 – 6Q = 4Q. Solving yields Q = 30 units. The
profit-maximizing price is obtained by plugging this into the demand equation to get P = 300 - 3(30) =
$210.
b. Revenues are R = ($210)(30) = $6300 and costs are C = 1,500 + 2(30)2 = $3,300, so the firm’s profits
are $3,000.
c. Elastic.
d. TR is maximized when MR = 0. Setting MR = 0 yields 300 – 6Q = 0. Solving for Q yields Q = 50 units.
The price at this output is P = 300 – 3(50) = $150.
e. Using the results from part d, the firm’s maximum revenues are R = ($150)(50) = $7,500.
f. Unit elastic.
The first-order conditions for a monopoly to maximize profits are:
Multiple Choice
 dR(Q)/dQ = dC(Q)/dQ.
 dπ(Q)/dQ = 0.
 MR(Q) = MC(Q).
Eric provides cheese (H) and milk (M) to the market with the following total cost
function: C(H, M) = 10 + 0.4H2 + 0.2M2. The prices of cheese and milk in the
market are $2 and $5 respectively. Assume that the cheese and milk markets are
perfectly competitive. What output of cheese maximizes profits?
Multiple Choice
 10
 5
 2.5
 2
In a monopoly where the marginal revenue and price are, respectively, given by
$0.50 and $2, the price elasticity of demand is:
Multiple Choice
 −5/4.
 −4/3.
 −0.75.
 −1.
In the long run, monopolistically competitive firms:
Multiple Choice
 have excess capacity.
 have excess capacity and produce at the minimum of average total cost.
 charge prices equal to marginal cost.
 produce at the minimum of average total cost.
In the long run, monopolistically competitive firms produce a level of output such
that:
Multiple Choice
 P = ATC.
 ATC > minimum of average costs.
 P > MC.
price?
Multiple Choice
 $12.5 per unit
 $6.25 per unit
 $18.75 per unit
 $31.25 per unit
your firm is:
Multiple Choice
 5.
 10.
 45.
 4/5.
5Q. Your costs are C = 10 + 3Q. Your firm's maximum profits are:
Multiple Choice
 66.
 0.
 170.
 120.
Chris raises cows and produces cheese and milk because he enjoys:
Multiple Choice
 economies of scope.
 economies of scale.
 cost complementarity
Multiple Choice
 12
 9
 6
 3
Which of the following is true?
Multiple Choice
 A monopolist produces on the inelastic portion of its demand.
 A monopolist always earns an economic profit.
 The more inelastic the demand, the closer marginal revenue is to price.
 In the short run, a monopoly will shut down if P < AVC.
price should be charged to maximize profits?
Multiple Choice
 $60.5
 $20.5
 $80.5
 $40.5
Suppose that a monopolistically competitive market is at the long-run equilibrium.

Based on this information, which of the following conclusions is NOT true?
Multiple Choice
 Firms' profits are zero.
 P > MC.
 P = ATC > minimum of ATC.
 Deadweight loss is zero.
$14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What price should you charge
in the short run?
Multiple Choice
 $18
 $14
 $12
 $16
level of output?
Multiple Choice
 Q1 = 62.5; Q2 = 125.
 Q1 = Q2 = 62.5.
 Q1 = Q2 = 125.
 Q1 = 125; Q2 = 62.5.
Multiple Choice
 400.
 500.
 450.
 250.
Differentiated goods are NOT a feature of a:
Multiple Choice
 perfectly competitive market and monopolistic market.
The second-order condition for a firm maximizing its profits operating in a perfectly
competitive market is:
Multiple Choice
 − (d2C(Q)/dQ2) < 0.
 − (dMC/dQ) < 0.
 (d2π/dQ2) < 0.
your firm is:
Multiple Choice
 10.
 30.
 40.
 20.
There is a market supply curve in a:
Multiple Choice
 perfectly competitive market and monopolistically competitive market.
In the long run, monopolistically competitive firms charge prices:
Multiple Choice
 below marginal cost.
 equal to marginal cost.
 above the minimum of average total cost.
 equal to the minimum of average total cost.
Multiple Choice
 9.
 .85.
 10.
What contributes to the existence of multiproduct firms?
Multiple Choice
 Economies of scale
 Cost complementarity
 Economies of scope
 Economies of scope and cost complementarity
ou are the manager of a firm that sells its product in a competitive market at a price
your firm is:
Multiple Choice
 4.
 10.
 5.
 15.
Recently, the spot market price of U.S. hot rolled steel plummeted to $400 per ton.
Just one year ago, this same ton of steel cost $700. According to Metals Monitor,
the drop in price was due to falling oil prices, along with a rise in cheap imports
and excess capacity. These dramatic market changes have greatly impacted the
supply of raw steel.

Suppose that last year the supply for raw steel was Qsraw = 600 + 4P, but this year it
has shifted to Qsraw = 4,200 + 4P.

Assuming the market for raw steel is competitive and that the current worldwide
demand for steel is Qdraw = 9,000 – 8P, compute the equilibrium price and quantity
for the steel market one year ago, and the equilibrium price–quantity combination
for the current steel market.
Instructions: Enter your responses as whole numbers.
Price one year ago: $ 700 Numeric Response 1.Edit Unavailable. 700 correct.

Quantity one year ago: 3,400 Numeric Response 2.Edit
Unavailable. 3,400 correct.
Price for current market: $ 400 Numeric Response 3.Edit

Quantity for current market: 5,800 Numeric Response 4.Edit
Unavailable. 5,800 correct.

Suppose the cost function of a representative steel producer is C(Q) = 1,200 +
15Q2.

How much raw steel does a representative firm produce when the market price is
$700?
23.3 Numeric Response 5.Edit Unavailable. 23.3 correct.
How much raw steel does a representative firm produce when the market price is
$400?

How does the change in production by a representative firm compare to the change
in production at the market level when price goes up?
multiple choice
 Production by a representative firm increases and production at the market
level increases.
 Production by a representative firm increases while market-level production
decreases due to exit.
 Production by a representative firm decreases and production at the market
level decreases.
 Production by a representative firm decreases while market-level production
increases due to entry. Correct
Explanation
Last year, market equilibrium was reached when P = $700 per ton and Q = 3,400 tons. This year, market
equilibrium is reached when P = $400 per ton and Q = 5,800 tons. As the market price rises, the
equilibrium market quantity falls. Competition implies that at an equilibrium market price of $700 per ton
each representative steel producer produces Q = 23.3 tons (P = MC). As the equilibrium price decreases,
the amount produced by each representative firm decreases to Q = 13.3 tons. As the equilibrium market
price falls, each representative firm supplies less to the market. However, the lower price of oil causes
firms to enter the market. Consequently, we have less production by the representative firm but more
production overall (due to there being more firms).
The second largest public utility in the nation is the sole provider of electricity in
32 counties of southern Florida. To meet the monthly demand for electricity in
these counties, which is given by the inverse demand function P = 1,200 – 4Q, the
utility company has set up two electric generating facilities: Q1 kilowatts are
produced at facility 1, and Q2 kilowatts are produced at facility 2 (so Q = Q1 + Q2).
The costs of producing electricity at each facility are given by C1(Q1) = 8,000 +
6Q12 and C2(Q2) = 6,000 + 3Q22, respectively. Determine the profit-maximizing
amounts of electricity to produce at the two facilities, the optimal price, and the
utility company’s profits.
Instruction: Enter your responses rounded to two decimal places.
Electricity at facility 1: 33.33 Numeric Response 1.Edit

Unavailable. 33.33 correct.units

Electricity at facility 2: 66.66 Numeric Response 2.Edit
Unavailable. 66.66 correct.units
Price: $ 800.00 Numeric Response 3.Edit Unavailable. 800.00 correct.
Instruction: Use the rounded values calculated above. Enter your response

rounded to the nearest two decimal places.
Profits: $ 46,000.00 Numeric Response 4.Edit Unavailable. 46,000.00 correct.
Explanation
Notice that MR = 1,200 – 8Q, MC1 = 12Q1 and MC2 = 6Q2. In order to maximize profits (or minimize its
losses), the firm equates MR = MC1 and MR =MC2. Since Q = Q1 + Q2, this gives us
1,200 – 8(Q1 + Q2) = 12Q1

1,200 – 8(Q1 + Q2) = 6Q2
Solving yields Q1 = 33.33 units and Q2 = 66.67 units. The optimal price is the amount consumers will pay
for the Q1 + Q2 = 100 units, and is determined by the inverse demand curve: P = 1,200 – 4(100) = $800. At
this price and output, revenues are R = ($800)(100) = $80,000.00, while costs are C1 + C2 = (8,000 +
6(33.33)2) + (6,000 + 3(66.67)2) = $34,000. The firm thus earns profits of $46,000.00.

in its peer group (which averages -3.5), what is Gillette’s advertising elasticity?
0.19 Numeric ResponseEdit Unavailable. 0.19 correct.
peer group?
multiple choice
Explanation
A / R = EQ,A / (-EQ,P) → 0.055 = EQ,A / (3.5) → EQ,A = (0.055)(3.5) = 0.19. Thus, Gillette’s advertising
elasticity is 0.19.
The elasticity of demand for a firm’s product is –2.5 and its advertising elasticity
of demand is 0.2.
a. Determine the firm’s optimal advertising-to-sales ratio.

b. If the firm’s revenues are $40,000, what is its profit-maximizing level of

advertising?

Explanation
a. The optimal advertising to sales ratio is given by A / R = EQ,A / (-EQ,P) = 0.2 / 2.5 = 0.08.
b. A / R = EQ,A / (-EQ,P) → A / $40,000 = 0.2 / 2.5 → A = (0.08)($40,000) = $3,200.
Which of the following is true under perfect competition?
Multiple Choice
 Profits are always positive.
 P > MC.
 P = MR.
 All of the choices are true for perfect competition.
Compute the marginal revenue when the price elasticity of demand is −0.10.
Multiple Choice
The first-order condition for a monopoly maximizing its profit is:
Multiple Choice
 (dR(Q)/dQ) − (dC(Q)/dQ) = 0.
 (dR(Q)/dQ) − (dC(Q)/dQ) < 0.

 P − (dC(Q)/dQ) = 0.
 (d2R(Q)/dQ2) − (d2C(Q)/dQ2) < 0.

A monopoly has two production plants with cost functions C1 = 40 + 0.2 Q12 and
C2 = 50 + 0.1 Q22. The demand it faces is Q = 480 − 5P. What is the profit-
maximizing level of output?
Multiple Choice
 Q1 = Q2 = 100
 Q1 = Q2 = 75
 Q1 = 50; Q2 = 100
 Q1 = 60; Q2 = 120
profit-maximizing combination of output and price, deadweight loss is:
Multiple Choice
 cannot be determined with the given information.
 $64.
 $128.
 $32.
You are the manager of a firm that sells its product in a competitive
market at a price of $40. Your firm's cost function is C = 60 + 4Q2.
Your firm's maximum profits are:
Multiple Choice
 60.
 80.
 36.
 40.
In a competitive industry with identical firms, long-run equilibrium is characterized

by:
Multiple Choice
 P < MC.
 P > AC.
 MR < P.
 MR = MC.
You are a manager in a perfectly competitive market. The price is $14. Your total
cost curve is C(Q) = 10 + 4Q + 0.5Q2. What level of output should you produce in
the short run?
Multiple Choice
 15
 8
 5
 10
Eric provides cheese (H) and milk (M) to the market with the following total cost
function: C(H, M) = 10 + 0.4H2 + 0.2M2. The prices of cheese and milk in the
market are $2 and $5 respectively. Assume that the cheese and milk markets are
perfectly competitive. What output of cheese maximizes profits?
Multiple Choice
 5
 2
 2.5
 10
Multiple Choice
 1
 3
 2
 4
Which of the following is NOT a basic feature of a monopolistically competitive
industry?
Multiple Choice
 There is free entry and exit into the industry.
 Each firm owns a patent on its product.
 There are many buyers and sellers in the industry.

 Each firm in the industry produces a differentiated product.
5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is:
Multiple Choice
 45.
 50.
 55.
 60.
Multiple Choice
 5.
 2.5.
 8.
The first-order conditions for a monopoly to maximize profits are:
Multiple Choice
 MR(Q) = MC(Q).
 dR(Q)/dQ = dC(Q)/dQ.
 dπ(Q)/dQ = 0.

Multiple Choice
 6.3.
 5.
 10/63.

profit-maximizing combination of output and price, monopoly profit is:
Multiple Choice
 $128.
 $32.
 $64.
 $92.
"Monopolistic competition is literally a kind of competition. Hence, there is no
deadweight loss in a monopolistically competitive market."
Multiple Choice
 The statement is incorrect.
 The statement is by definition correct but empirically incorrect.
 The statement is correct.

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Which of the following statements is

NOT correct about monopoly?

 Monopolists always make positive profits in the long run.

 A monopoly may make negative profits in the short run.

 There is no close substitute for a monopoly's product

 a horizontal line at $9.

 All of the choices are true for monopoly.

 Profits are always positive.

 The refrigerator industry in Sweden is perfectly competitive.

 In the absence of imports, the refrigerator industry in Sweden is

 None of the answers is correct.

 cannot be determined with the given information.

 monopolistically competitive markets.

 perfectly competitive markets.

 monopolistically competitive markets and monopolistic markets.

 a monopolistically competitive market.

 a perfectly competitive market.

 Cannot be determined with the given information.

 (d2R (Q)/dQ2) − (d2C(Q)/dQ2) < 0.

 $45 per unit

 $50 per unit

 $40 per unit

 The incumbent will leave the market.

 None of the answers is correct.

 Some firms will enter the industry.

 There is some deadweight loss in a monopolistic market.

 A monopoly has market power.

 average total costs increase as output increases.

 average total costs decline as output increases.

 Demand will increase.

 Demand will decline.

 None of the answers is correct.

 There will be neither entry nor exit from the market.

 Some firms will leave the market eventually.

 There is insufficient information to determine the firm's marginal revenue.

 Firms produce homogeneous goods.

 Long-run profits are zero.

 Prices are above marginal costs in the long run.

Price: $ 360 Numeric Response 1.Edit Unavailable. 360 correct.

What long-run adjustments should you anticipate?

20 Numeric Response 1.Edit Unavailable. 20 correct.units

b. What price should the firm charge in the short run?

c. What are the firm’s short-run profits?

$ 750 Numeric Response 3.Edit Unavailable. 750 correct.

d. What adjustments should be anticipated in the long run?

a. Find the inverse demand function for your firm’s product.

P = 9 Numeric Response 1.Edit Unavailable. 9 correct.- 0.25 Numeric

b. Determine the profit-maximizing price and level of production.

Instruction: Price should be rounded to the nearest penny (two decimal places).

Price: $ 8.50 Numeric Response 3.Edit Unavailable. 8.50 correct.

c. Calculate your firm’s maximum profits.

$ 1.00 Numeric Response 5.Edit Unavailable. 1.00 correct.

d. What long-run adjustments should you expect? Explain.

b. MR = 9 – .5Q and MC = 4 + 2Q. Setting MR = MC yields 9 – .5Q = 4 + 2Q. Solving for Q yields Q = 2

Materials and labor are obtained in a competitive market on an as-needed basis,

Instruction: Enter your response rounded to two decimal places.

$ 4.75 Numeric Response 1.Edit Unavailable. 4.75 correct.

Determine your profit-maximizing production of Type A bolts:

3 Numeric Response 2.Edit Unavailable. 3 correct.Type A bolts

To determine the profit-maximizing level of Type A bolts to produce, we must compare MR and MC.

Instruction: Use the nearest whole numbers on the graph when calculating

a. What is the firm’s optimal output?

7 Numeric Response 1.Edit Unavailable. 7 correct.units

b. What is the firm’s optimal price?