Question

37. Suppose there is a competitive market for e-bikes that is in the long-run. If firms in the
e-bike market are not identical, then an increase in cost will
A) shift marginal cost to the right.
B) push the most inefficient firms out of the market.
C) push the most efficient firms out of the market.
D) There is not enough information to answer.
38. Suppose the company E-bikes R US is the sole supplier of e-bikes and produces 100
e-bikes. E-Bikes R US faces MC = 15 and MR = 17. If E-bikes R US produces 101 e-bikes,
then MC = 16 and MR = 15. To maximize profits, E-Bikes R US
A) should produce 100 units.
B) should produce 101 units.
C) The firm cannot maximize profits.
D) The firm is not a monopoly.
39. Suppose the company E-bikes R US is the sole supplier of e-bikes and faces the following
inverse demand: p = 100 - 2Q. Profit maximization
A) is achieved when 25 units are produced.
B) is achieved by setting price equal to 25.
C) is achieved only by shutting down in the short run.
D) cannot be determined solely from the information provided.
40. Suppose the company E-bikes R US is the sole supplier of e-bikes. The more elastic the
demand curve faced by E-bikes R US, the monopolist
A) will have a larger Lerner Index.
B) will face a lower marginal cost.
C) will earn more profit.
D) will lose more sales as it raises its price.
41. Suppose the company E-bikes R US is the sole supplier of e-bikes. As other e-bike firms
enter the market, the market power of E-bikes R US
A) is unaffected.
B) declines.
C) increases.
D) increases according to the Lerner Index but decreases according to the price/marginal cost
ratio.
42. Suppose the company E-bikes R US is the sole supplier of e-bikes and faces the following
inverse demand function: p = 100 - 2Q, and total cost is given by TC = 16q + 2. The
deadweight loss from E-bikes R US equals
A) $21.
B) $441.
C) $882.
D) $1,764.

Answer 1

Ans.37 shift marginal cost to the right.(A)

Explanation :

Ans.38 should produce 100 units.(A)

Explanation :

Firm's profit = MR - MC

In situation 1, MC = 15 & MR = 17

Profit = 17 - 15 = 2

Whereas, in situation 2, MC = 16 & MR = 15

Profit = 15-16 = - 1 (the firm bear's loss)

Therefore, the form should produce 100 units.

Ans.39 Cannot be determined solely from the information provided. (D)

Explanation :

The inverse demand function can be used to derive the total and marginal revenue functions. Total revenue equals price, P, times quantity, Q, or TR = P×Q. Multiply the inverse demand function by Q to derive the total revenue function: TR = (100 - 2Q) × Q = 100Q - 2Q². The marginal revenue function is the first derivative of the total revenue function or MR = 100 - Q.

For calculating MC, Cost function is required.

MR = MC is the profit maximizing quantity.

Ans.40  Will lose more sales as it raises its price. (D)

Explanation :

Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed.

Ans.41 is uneffected (A)

Explanation :

Market power is the ability of a firm to raise and maintain price above the level that would prevail under competition is referred to as market power.

The less elastic is the demand for the product, the more would be the degree of monopoly power. Monopoly is market structure in which there is a single seller of a product with no close substitutes. There are significant barriers to entry such that new firms will find it very difficult or even impossible to enter the market. Barriers may block entry even if the firm or firms currently in the market are earning profits.

So, market power remains unaffected.

Ans. 42 $21

Explanation :

DWL = 1/2 × dP × dQ