Topic IX: Answers to short answer questions

1. Create a demand curve and a MC curve. Calculate MR and profits for each level of output.

P	Q	TR	MR	MC	TVC	FC	TC	Profits
$40	1	$40	$40	$5	$5	$10	$15	$25
$45	2	$90	$50	$2	$7	$10	$17	$73
$40	3	$120	$30	$10	$17	$10	$27	$93
$35	4	$140	$20	$20	$37	$10	$47	$93
$30	5	$150	$10	$40	$77	$10	$87	$63
$25	6	$150	$0	$100	$177	$10	$187	-$37
$20	7	$140	-$10	$160	$337	$10	$347	-$207

2. In what sense do all firms always face "some competition?"

There are substitutes for any good. In some cases those substitutes are perfect and in others they may be very weak substitutes.

3. In what sense does the "profit success" of a monopolist depend on both the elasticity of demand for its product and the "level of demand" for its product?

The more inelastic the demand, the greater the "flexibility" the monopolist has to increase price without lowering quantity demanded significantly.

The greater the demand at any one price, the greater the volume the monopolist can sell.

4. What kinds of conditions would be important for a firm to successfully "price discriminate." Hint: How are buying the services of a medical doctor, or a mechanic, or a new car different from buying a movie ticket, an ice cream cone, or a watch?

Keys to success in price discrimination are:

1) the consumer has very limited knowledge about exactly what product they are buying;
2) resell of a product is difficult (this keeps others from buying at the monopolist's lowest price and then becoming a seller,
3) consumers don't know about the price difference between groups or they are willing to "accept" this price difference as "fair" - such as kids eat free, senior citizen discounts, etc.

5. Calculate the maximum profits for a single price monopolist producing in the situations shown in the figures below.

Top graph: TR=50 x $10 = $500, TC=50 x $8 = 400, Economic Profits = $100

Bottom graph: TR = 50 x $10 = $500, TC = 50 x $13 = $650, Economic Losses = -$150