Part V:

1/340/chap15
Price($) Quantity TR TC Profit MR
100 0 0 2M -2M ___
90 100,000 9M 3M 6M 90
80 200,000 16M 4M 12M 70
70 300,000 21M 5M 16M 50
60 400,000 24M 6M 18M 30
50 500,000 25M 7M 18M 10
40 600,000 24M 8M 16M -10
30 700,000 21M 9M 12M -30
20 800,000 16M 10M 6M -50
10 900,000 9M 11M -2M -70
0 1M 0 12M -12M -90

a) A profit maximizing publisher would choose quantity

of 400,000 at the price 60$ , 500,000 at the price 50$.
b) Marginal revenue is always equal to or less than price.
Price falls when quantity rise because the demand curve
slopes downward, but MR falls even more than price
because the firm loses revenue on all the units of the
good sold when it lowers the price.
c)
The diagram above shows the marginal-revenue,
marginal-cost, and demand curves. The marginal-
revenue and marginal-cost curves cross between
quantities of 400,000 and 500,000. This signifies that the
firm maximizes profits in that region.
d)
The area of deadweight loss is marked “DWL” in the
figure. Deadweight loss means that the total surplus in
the economy is less than it would be if the market were
competitive, because the monopolist produces less than
the socially efficient level of output.
e)
If the author were paid £3 million instead of £2 million,
the publisher would not change the price, because there
would be no change in marginal cost or marginal
revenue. The only thing that would be affected would be
the firm’s
profit, which would fall. The author’s fee is a fixed cost –
it does not vary as the quantity of books sold varies.
f)
To maximize economic efficiency, the publisher would
set the price at £10 per book, because that is the
marginal cost of the book. At that price, the publisher
would have negative profits equal to the amount paid to
the author.
5/340/chap15
a)
Price($) Quantity TR MR TC Profit
24 10,000 240,000 __ 50,000 190,000
22 20,000 440,000 20 100,000 340,000
20 30,000 600,000 16 150,000 450,000
18 40,000 720,000 12 200,000 520,000
16 50,000 800,000 8 250,000 550,000
14 60,000 840,000 4 300,000 540,000

b) Maximize profit is $550,000 with the price 16$ and

50,000 CDs.
c) 14$ because it has the maximize profit is 1,14 M.
10/341/chap15
Unless the product has ill effects that its price does not
reflect (such as pollution), monopolies typically produce
less than what is socially efficient. If this is the case, the
government should use a per unit subsidy to encourage
more production. A per unit tax would just convince the
monopoly to find a way to produce less in order to
reduce the total tax while increasing profit per unit. 
13/342/chap15

1/363/chap16
a) Tap water is a monopoly. It is generally government
created monopoly.
b) Bottled water industry is an example of perfect
competition.
c) Cola is an example of oligopoly.
d) Beer is an example of monopolistic competition.
5/363/chap16
a) since P>ATC, the firm cannot be in long run
equilibrium. In the long run equilibrium the firm earns
zero profits for which the price should be equal to
average total cost. Now the firm to be in long run
equilibrium must increase its price such than the
marginal cost but equal to the average total cost.
b) since P<ATC, the firm cannot be in long run
equilibrium. In fact price being less than the average
total cost indicates that the firm is incurring economic
losses in the short run. Losses make the other firms to
leave the industry so that price becomes equal to the
average total cost and the remaining firms earn zero
profits.
c) since P>ATC the firm cannot be in long run equilibrium.
In the long run equilibrium the firm
earns zero profits for which the price should be equal to
average total cost. Now the firm to be in
long run equilibrium must make its price such that it is
equal to the average total cost-in other words the profits
in the industry will continue to invite more entries of
firms till the price is equal to
the average total cost.
d) since P=ATC the firm makes a zero economic profit
and thus can be in long run equilibrium.
10/360/chap16
1/386/chap17
a) If there were many suppliers of demands, price would
equal marginal cost ($1,000), so the quantity would be
12,000.
b)
Profit Quantity TR ($) MR
8,000 5,000 40M _
7,000 6,000 42M 2,000
6,000 7,000 42M 0
5,000 8,000 40M -2,000
4,000 9,000 36M -4,000
3,000 10,000 30M -6,000
2,000 11,000 22M -8,000
1,000 12,000 12M -10,000

With only one supplier of diamonds, quantity would be

set where marginal cost equals marginal revenue. The
monopolist will maximize profits at a price of $7,000 and
a quantity of 6,000.
c)
 If Russia and South Africa formed a cartel, they would
set price and quantity like a monopolist, so the price
would be $7,000 and the quantity would be 6,000. If they
split the market evenly, they would share total revenue
of $42 million and costs of $6 million, for a total profit of
$36 million. So each would produce 3,000 diamonds and
get a profit of $18 million. If Russia produced 3,000
diamonds and South Africa produced 4,000, the price
would decline to $6,000. South Africa’s revenue would
rise to $24 million, costs would be $4 million, so profits
would be $20 million, which is an increase of $2 million.
d)
Cartel agreements are often not successful because
one party has a strong incentive to cheat to make more
profit. In this case, each could increase profit by $2
million by producing an extra thousand diamonds.
However, if both countries did this, profits would decline
for both of them.
5/386/chap17
a) Synergy does not have a dominant strategy.
According to the chart, only when Synergy’s Decision
have large budget and Dynaco have small budget,
Synergy gains $30 million more than Dynaco gain
nothing.
b) In the other hand, Dynaco have a dominant strategy.
Except when Dynaco have small budget, Dynaco have
more gain than Synergy in other sittuation.
c) True, it has Nash equilibrium as (large budget, large
budget).
10/368/chap17
a) The profits from 80 gallons = 80*40= $3200.
=> So if it was three ways this would net John a
profit of 3200/3= $1066.66.
b) John will make a profit =$1066.66+$30 = $1099.80.
c) The Nash equilibrium are Jack’s, Jill’s decission high
production: 40 Gallons and low production: 30 Gallons.