Question: A monopolist earns $70 million annually and will maintain that level of profit indefinitely, prov…
Show transcribed image text A monopolist earns $70 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $70 million in the current period and $30 million annually thereafter. The opportunity cost of funds is 16 percent, and profits in each period are realized at the beginning of each period. What is the present value of the monopolist's current and future earnings if entry occurs? If the monopolist can earn $36 million indefinitely by limit pricing, should it do so? A monopolist earns $70 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $70 million in the current period and $30 million annually thereafter. The opportunity cost of funds is 16 percent, and profits in each period are realized at the beginning of each period. What is the present value of the monopolist's current and future earnings if entry occurs? If the monopolist can earn $36 million indefinitely by limit pricing, should it do so?
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Need a previously written solution for this question?A monopolist earns $40 million annually and will maintain that level of profit indefinitely, provided that no other firm enters the market. However, if another firm enters the market, the monopolist will earn $40 million in the current period and $22 million annually thereafter. The opportunity cost of funds is 15 percent, and profits in each period are realized at the beginning of each period. a. What is the present value of the monopolist’s current and future earnings if entry occurs?b. If the monopolist can earn $27 million indefinitely by limit pricing, should it do so? Does a monopolist take market price as given? Why or why not? No, because barriers to entry exist, a monopolist does not take the market price as given. No, a monopolist takes into account that its output decision can affect price, and its marginal revenue is not its price. Yes, a monopolist takes the market price as given because the monopolist faces potential competition from other firms, so the price charged must be competitive. Yes, a monopolist’s marginal revenue is the given market price. Q41 A single-price monopolist is currently producing an output level where price equals marginal cost and profits are positive. To maximise profits, this monopolist should... a. Reduce price and let production adjust to the new price. b. Decrease production and increase price. c. Not change his output level, because it is currently earning profits. d. Increase production and reduce price. e. Produce zero output. Clear my choice We learned that in a competitive market equilibrium the Marginal Cost equals the Price, as Marginal Revenue is the same as Price for a perfectly competitive seller. Now, how does the Marginal Cost compare to Price at the monopolist's profit maximizing output and price combination? If Price is generally seen as the monetized Marginal Benefit to consumers of the product and Price exceeds Marginal Cost, then this is allocatively inefficient, as Marginal Benefit exceeds Marginal Cost. Question 27 Consider a monopoly market in which the market demand curve is given by P = 240 – 2Q, the marginal revenue curve is MR = 240 – 4Q, the marginal cost curve is MC = 2Q, and there are zero fixed costs. Suppose the government intervenes and turns the market into a competitive market, and all the firms in the market have the same marginal cost curve as the monopolist, MC = 2Q, and zero fixed costs. How much is the resulting gain in total surplus? 300 800 400 600 Both questions answered Question 1: Which of the following is true of a profit-maximizing monopolist firm? 1) It has no incentive to minimize its costs 2) It sets price equal to marginal cost 3) It chooses a production level higher than that which is socially optimal 4) It chooses a production level on the elastic portion of the demand curve 5) It chooses a production level such that marginal revenue is greater than marginal cost Question 2: In which of the following market structures do firms maximize profits by producing at the point where price is equal to marginal cost? I. Perfect competition II. Monopoly III. Oligopoly IV. Monopolistic competition 1) I 2) II 3) II and III 4) I and IV 5) I, II, III, and IV A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are: P1=20−Q1 MR1=20−2Q1 P2=30−2Q2 MR2=30−4Q2 The monopolist's total cost is C=5+5(Q1+Q2). What are price, output, profits, marginal revenues, and deadweight loss if the monopolist can price discriminate? (round all answers to two decimal places) In market 1, the price is $12.50 and the quantity is 7.50 In market 2, the price is $17.50and the quantity is 6.25 A monopolist is deciding how to allocate output between two geographically separated markets (East Coast and Midwest). Demand and marginal revenue for the two markets are: P1=20−Q1 MR1=20−2Q1 P2=30−2Q2 MR2=30−4Q2 The monopolist's total cost is C=5+5(Q1+Q2). What are price, output, profits, marginal revenues, and deadweight loss if the monopolist can price discriminate? (round all answers to two decimal places) In market 1, the price is $12.50 and the quantity is 7.50 In market 2, the price is $17.50and the quantity is 6.25 The monopolist's profit is $_____. Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost. If profit is less than zero that indicates a loss. What is the maximum profit you found in this table? At what quantity and price combination is profit maximized for this monopolist? Is Price Discrimination a case of monopoly only? If yes, then why and how? Why is it favorable to monopolists? And what are the reasons for this act? Can we consider dumping and prices discrimination the same? If yes then how, if not then why? Make a meaningful report to cover all the aspects of monopoly, price discrimination and dumping. Suppose a monopolist faces a market demand that is the first two columns in the table below. Also, in the short run, assume that Total Fixed Cost equals $100 and the monopolist has Total Variable Cost according to the table. Find Total Revenue for each price and quantity combination, and then Marginal Revenue as price falls and quantity increases. Fill in the rest of the costs in the table and find profit at each price and quantity combination as the difference between Total Revenue and Total Cost. Being the only producer in a monopoly market, can a monopolist charge a very high price to maximize profit? Why, or why not?From a societal point of view, can we claim that perfect competition and monopoly are equally efficient? Why, or why not? Explain. arrow_back_ios arrow_forward_ios |