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In: Economics

Indicate whether the following statements are true or false, and then explain your answers: a. The...

Indicate whether the following statements are true or false, and then explain your answers:

a. The marginal revenue from selling another unit of eggs can never be higher than the price of eggs.

b. Because the price a seller charges is always greater than $0, the marginal revenue from selling another unit must also be greater than $0.

17. Consider the market for Pop Rocks depicted in the diagram below:

a. If the Pop Rock industry were competitive, what would the competitive price and quantity be?

b. If the Pop Rock industry were competitive, what would the consumer and producer surpluses be, respectively?

c. Suppose that gangland figure Tommy Vercetti monopolizes the Pop Rock market. What price and quantity would he choose to maximize profit?

d. Calculate the consumer and producer surpluses of this Pop Rock monopoly.

e. Compare your answers in (d) to (b). How big is the deadweight loss of monopoly?

20. Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 – 0.33Q. The brewery can produce beer at a constant marginal and average total cost of $1 per bottle.

a. Calculate the profit-maximizing price and quantity, as well as producer and consumer surplus and the deadweight loss from market power.

b. If it were possible to organize the townsfolk, how much would they be willing to pay the brewery to sell beer at a price equal to its marginal cost?

c. What is the minimum payment the brewery would be willing to accept to sell beer at a price equal to marginal cost?

d. Is there potentially a bargain that can be struck between the townsfolk and brewery? What would the deadweight loss be if such a bargain were struck?

Expert Solution

Rahul Sunny answered 8 months ago

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