A monopolist chooses price and advertising to maximize profits. Demand is given by y(p)=200-0.25p+0.05A0.5 where y...

A monopolist chooses price and advertising to maximize profits. Demand is given by y(p)=200-0.25p+0.05A^0.5 where y is the quantity of output sold, p is the price of per unit of output, and A is the number of advertising messages. The marginal production cost is $2 and the cost per unit of advertising is $1. Profits are given by π(p)=(p-2)y(p)-A

a) Find the choices of p and A that maximize profits.
b) Calculate the price elasticity |??| and the advertising elasticity ?_? at the equilibrium.
c) Verify that the Dorfman-Steiner condition holds (?.?., ?/??=|?_?| /?_?).
d) Interpret this condition intuitively.

Expert Solution

Rahul Sunny answered 2 years ago

1..A pure monopolist will maximize profits by producing at that output where price and marginal cost...

1..A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal. A)True B)False 2..In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to: A)average total cost. B)marginal revenue. C)average variable cost. D)average cost. 3..Which is not true for a monopolistically competitive industry? A).Firms tend to operate with excess capacity. B). Each firm faces a downward-sloping demand curve. C). These firms earn zero...

2. The inverse demand curve of a monopolist is given by: P = 200 −...

2. The inverse demand curve of a monopolist is given by: P = 200 − Q and the marginal cost is constant at $10, how does charging the monopoly a specific tax of τ=$12 per unit affect the monopoly optimum and the welfare of consumers, the monopoly, and society (where society's welfare includes the tax revenue)? Calculate the following: equilibrium price and quantity before the tax equilibrium price and quantity after the tax the change in consumer surplus the...

A monopolist faces a demand curve of Q = 164 – P, where P is price...

A monopolist faces a demand curve of Q = 164 – P, where P is price and Q is the output produced by the monopolist. What choice of output will maximize revenue? Group of answer choices 70 74 82 86 if monopolist produces good X and faces a demand curve X = 112 - 2P, where P is price. What is the monopolist's marginal revenue as a function of good X? Group of answer choices 44 - X 56 -...

19. To maximize profits, a single-price monopolist will produce where Marginal costs = Marginal revenue: establishing...

19. To maximize profits, a single-price monopolist will produce where Marginal costs = Marginal revenue: establishing a price that is greater than their marginal cost. True False 20. As a consequence of the perfectly competitive firm producing the quantity of output at which: price equals marginal revenue and marginal cost, it will achieve "allocative efficiency" in the deployment of societies scarce resources. True False 21. In the "long-run," the perfect competitive achieves technical efficiency and the firm will produce at:...

A monopolist has access to an industry with market demand P = 10 − y where...

A monopolist has access to an industry with market demand P = 10 − y where y is the firm’s quantity. Its cost function is C(y) = 2y a. Determine the firm’s profit maximizing quantity. Show your outcome on a graph. What is the firm’s profit? Compute the point-elasticity of demand at the profit-maximizing output. b. Now suppose the firm’s cost function is C(y) = 4y Again determine the profit-maximizing quantity, profit and the elasticity at the profit-maximizing quantity. (No...

II. Consider a monopolist where the market demand curve for the produce is given by P...

II. Consider a monopolist where the market demand curve for the produce is given by P = 520 – 2Q. This monopolist has marginal costs that can be expressed as MC = 100 + 2Q and total costs that can be expressed as TC = 100Q + Q2 + 50. a. Given the above information, what is this monopolist’s profit maximizing price and output if it charges a single price? b. Given the above information, calculate this single price monopolist’s...

Consider a Monopolist where the inverse market demand curve for the produce is given by P...

Consider a Monopolist where the inverse market demand curve for the produce is given by P = 520 − 2Q. Marginal Cost: MC =100 + 2Q and Total Cost: 100 .50 2 TC = Q + Q + [1 + 1 + 1 = 3] Calculate: (a) Profit Maximizing Price and Quantity. (b) Single Price Monopolist Profit. (c) At the profit maximizing quantity, what is the Average Total Cost (ATC) for the Consider a Monopolist where the inverse market demand...

1. A multi-plant monopolist will maximize profits where a. the marginal revenue in each plant is...

1. A multi-plant monopolist will maximize profits where a. the marginal revenue in each plant is equal to the marginal cost in this plant b. the marginal revenue of monopoly is equal to the marginal cost of each plant c. average cost is at its minimum in both plants d. none of the above

the demand is given by p= 140-4Q Where P is the price and Q is the...

the demand is given by p= 140-4Q Where P is the price and Q is the quantity demanded. Find the price at which the own price elasticity is -3. (round to 2 decimals)

Suppose a monopolist faces a demand curve given by p(y) = 1/y^2 . (a) Write down...

Suppose a monopolist faces a demand curve given by p(y) = 1/y^2 . (a) Write down the monopolist's total revenue as a function of y. (b) Find the monopolist's marginal revenue as a function of y. (c) Find the demand elasticity for this demand curve. Note that this is a demand curves where the elasticity is the same at all points. (You can get rid of all variables and find the elasticity as a single number.) (d) Suppose the monopolist's...

Question