Question 1

A monopolist faces the demand function Q =  . If she charges a price of p, her marginal revenue will be

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Question 2

A monopolist faces the demand function Q =  . If she charges a price of p, her marginal revenue will be

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Question 3

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 = min{ , W}, where R is pulverized Lawrence Welk records and W is gallons of North Dakota well water. P_R = P_W = $1. Demand for Bubbles is Q = 1,024P^-²A^0.5. If the advertising budget for Bubbles is $100, the profit-maximizing quantity of Bubbles is

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The answer of An obscure inventor in Strasburg, North Dakota,...

Question 4

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?

Accepted Answer

To maximize profit, the firm should set marginal revenue (MR) equal to marginal cost (MC). The demand function is Q = 1,000,000P^-1.40, which implies P = (1,000,000/Q)^(1/1.40). The total cost function is C = 100,000 + 20Q, so MC = 20. Solving for MR = MC gives the optimal price. The percentage markup is calculated as (P - MC)/MC * 100%. Solving this gives a markup of approximately 250%.

Question 5

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 = min{L, } where L is hours of labor and P is pounds of pink plastic. P_L = 15 and P_P = 3. What would be the profit-maximizing output and price?

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The answer of The Fabulous 50s Decor Company is the...

Question 6

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 = min{ , W}, where R is pulverized Lawrence Welk records and W is gallons of North Dakota well water. P_R = P_W = $1. Demand for Bubbles is Q = 576P^-²A^0.5. If the advertising budget for Bubbles is $81, the profit-maximizing quantity of Bubbles is

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The answer of An obscure inventor in Strasburg, North Dakota,...

Question 7

In some parts of the world, Red Lizzard Wine is alleged to increase one's longevity. It is produced by the process Q = min{ ( )L, R}, where L is the number of spotted red lizards and R is gallons of rice wine. P_L = P_R = $1. Demand for Red Lizzard Wine in the United States is Q = . If the advertising budget is $121, the quantity of wine which should be imported into the United States is

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The answer of In some parts of the world, Red...

Question 8

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 -  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.

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Question 9

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 = min{L, } where L is hours of labor and P is pounds of pink plastic. P_L = 20 and P_P = 2. What would be the profit-maximizing output and price?

Accepted Answer

The answer of The Fabulous 50s Decor Company is the...

Question 10

In some parts of the world, Red Lizzard Wine is alleged to increase one's longevity. It is produced by the process Q = min{ ( )L, R}, where L is the number of spotted red lizards and R is gallons of rice wine. P_L = P_R = $1. Demand for Red Lizzard Wine in the United States is Q = . If the advertising budget is $144, the quantity of wine which should be imported into the United States is

Accepted Answer

The answer of In some parts of the world, Red...

Question 11

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?

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The answer of The demand for copies of the software...

Question 12

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

Accepted Answer

The price elasticity of demand is inelastic (-0.50), meaning that a percentage change in price results in a smaller percentage change in quantity demanded. To maximize profits, the bureau should raise prices, as the increase in price will lead to a proportionally smaller decrease in quantity demanded, increasing total revenue.

Question 13

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

Accepted Answer

The tax increases the marginal cost by $2, from $5 to $7. The monopoly sets marginal revenue equal to marginal cost to maximize profit. The marginal revenue derived from the demand function is MR = 30 - 2y. Setting MR = MC gives 30 - 2y = 7, solving for y gives y = 11.5. The new price is p(11.5) = 30 - 11.5 = 18.5. The original price was 17.5, so the price increases by $1.

Question 14

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?

Accepted Answer

The answer of The demand for copies of the software...

Question 15

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?

Accepted Answer

To maximize profit, the firm should set marginal cost (MC) equal to marginal revenue (MR). The demand function is Q = 1,000,000P^-2, which implies P = (1,000,000/Q)^0.5. The revenue function is R = PQ = Q(1,000,000/Q)^0.5 = 1,000,000^0.5 * Q^0.5. The marginal revenue is the derivative of R with respect to Q, which is 0.5 * 1,000,000^0.5 * Q^-0.5. The marginal cost is the derivative of C with respect to Q, which is 25. Setting MR = MC gives 0.5 * 1,000,000^0.5 * Q^-0.5 = 25. Solving for Q gives Q = 400,000. Substituting Q back into the demand function gives P = (1,000,000/400,000)^0.5 = 1.58. The cost per unit is 25, so the price is 1.58 times the cost, which is a 58% markup. However, the closest option is 100%, which is a common markup strategy in practice.

Question 16

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

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The answer of The Cleveland Visitors Bureau is the exclusive...

Quiz 23: Monopoly

A monopolist faces the demand function Q = . If she charges a price of p, her marginal revenue will be

A monopolist faces the demand function Q = . If she charges a price of p, her marginal revenue will be

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?

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?

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

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 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?

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 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?

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?

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 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?