Globo Public Supply has $1,000,000 in assets. Its demand curve is: P= 206 - .20

Question

Globo Public Supply has $1,000,000 in assets. Its demand curve is: P= 206 - .20 * Q and its total cost function is: TC = 20,000 + 6 * Q where TC excludes the cost of capital. If Globo Public Supply is UNREGULATED, find Globos optimal price.

A. $206

B. $107

c. $56

D. $6

e. $3

A monopolist faces tge follownig demand curve: P= 12- .3Q with marginal costs of $3. What is the monopolistic price?

a.   P=$5.50

B.   P=$6.50

c.   P=$7.50

d.   P=$8.50

e.   P=$9.50

A monopoly will always produce less than a purely competitive industry, ceteris paribus.

a. true

b. false

The demand curve facing the firm in _____ is the same as teh industry demand curve.

a. pure competition

b. monopolistic competition

c. oligopoly

d. pure monopoly

e. none of the above

Suppose that in a perfectly competitive industry the equilibirum industry quantity is 10,000 units. Suppose that the monopoly output is 5,000. For a 2 firm Cournot Oliopoly (N=2) known as a duopoly, what is a likely Cournot QUANTITY for the industry?

a. 3000 units

b. 5000 units

c. 6667 units

d. 10000 units

e. 15000 units

A manufacturer produces two types of computer softwware, Word processing (W) and spreadsheet (S), which is offered to two different retail outlets (#1 and #2). The following table shows the max price each retail outlet is willing to pay for each individual software product.

Retail #1           Product W         $170                     Product S      $105

Retail #2           Product W         $95                       Product S      $135

What is the optimal pricing strategy that will maximizerevenue for the manufacturer, given the maximum the retail outlets are willing to pay?

a. budnel both products (W and S) and sell them at $230

b. price product w at $170 and product s at $135

c. price product w at $170 and product s at $170

d. price product w at $95 and product s at $105

e. bundle both products (w and S) and sell them at $275

Explanation / Answer

1. $106
Demand: P = 206 - 0.20Q
TC = 20000 + 6Q

Profits = TR - TC = P*Q - TC(Q) = (206 - 0.20Q)*Q - (20000 + 6Q)
For max, dProfits/dQ = 0. Hence:
206 - 0.40Q - 6 = 0
=> 0.40Q = 200
=> Q = 200/0.40 = 500
From demand function: P = 206 - 0.20Q = 206 - 0.20*500 = $106

2. c. P = $7.50
TR = P*Q = (12 - 0.3Q)*Q
MR = dTR/dQ = 12 - 0.6Q
At profit max, MR = MC => 12 - 0.6Q = 3 => 0.6Q = 9 => Q = 9/0.6 = 15
But, P = 12 - 0.3Q = 12 - 0.3*15 = $7.5

3. a. True
The monopolist faces a downward sloping demand curve that gives it the market power to choose its own price (of course the monopolist is constrained by the demand function as to how much it can sell at that price).

4. d. pure monopoly
The monopoly is the only firm in the industry, hence the firm and industry face the same demand curve.

5. c. 6667
The oligopoly output lies somewhere in between the output of monopoly and the output of perfect competition. The only quantity greater than monopoly (5000) and less than perfect competition (10000) is 6667.

6. b. price product w at $170 and product s at $135
The strategy available to the manufacturer are:
Bundle and sell to Retail#1 at 170 + 105 = $275
Bundle and sell to Retail#2 at 95 + 135 = $230
Sell W to Retail#1 at $170 and Sell S to Retail#2 at $135 = $305
Sell W to Retail#2 at $95 and Sell S to Retail#1 at $105 = $200
The maximum he gets is by selling W to retail#1 at $170 and selling S to retail#2 at $135.

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