Solution Manual For Microeconomics Brief Edition 3rd Edition Campbell Mcconnell Stanley Brue Sean Flynn Full Download

Solution Manual for Microeconomics, Brief Edition, 3rd Edition, Campbell McConnell, Stanley
Solution Manual for Microeconomics, Brief Edition,

3rd Edition, Campbell McConnell, Stanley Brue, Sean
Flynn
To download the complete and accurate content document, go to:

https://testbankbell.com/download/solution-manual-for-microeconomics-brief-edition-3
rd-edition-campbell-mcconnell-stanley-brue-sean-flynn/
Visit TestBankBell.com to get complete for all chapters

Chapter - 08 Pure Monopoly
McConnell, Brue, Flynn

Microeconomics: Brief Edition, 3e
Chapter 8
Pure Monopoly
QUESTIONS
Question 1
“No firm is completely sheltered from rivals; all firms compete for consumer dollars. If that is
so, then pure monopoly does not exist.” Do you agree? Explain.
Answer
Though it is true that “all firms compete for the dollars of consumers,” it is playing on words to
hold that pure monopoly does not exist. If you wish to send a first-class letter, it is the postal
service or nothing. Of course, if the postal service raises its rate to $10 to get a letter across town
in two days, you will use a courier, or the phone, or you will fax it. But within sensible limits,
say a doubling of the postal rate, there is no alternative to the postal service or anything like it at
a comparable price.
The same case can be made concerning the pure monopoly enjoyed by the local electricity
company in any town. If you want electric lights, you have to deal with a single company. It is a
pure monopoly in that regard, even though you can switch to oil or natural gas for heating. Of
course, you can use oil, natural gas, or kerosene for lighting too—but these are hardly convenient
options.
Question 2
Discuss the major barriers to entry into an industry. Explain how each barrier can foster either
monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially
justifiable?
Answer
Economies of scale are a barrier to entry because of the need for new firms to start big to achieve
the low production costs of those already in the industry. However, not all industries need
techniques of production that require large scale. In many industries the minimum efficient scale
is only a small percentage of domestic consumption.
8-1
Copyright ©2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Natural monopolies give rise to monopoly that is socially justifiable. The economies of scale are
sometimes such that having two or more firms serving the market would increase costs
unreasonably. Two telephone companies, or gas companies, or water companies, or electricity
companies in the same city would be highly inconvenient and costly as long as transmission
requires wires and pipes. In such instances, it makes sense for government to grant exclusive
franchises and then regulate the resulting monopoly to ensure the public interest is protected.
Patents and licenses are legal barriers to entry that also, to some extent, are justifiable. If
inventions were not protected at all from immediate copying by those who bore none of the
costs, the urge to invent and innovate would be lessened and the costly secrecy that is enforced
already would have to be much greater and more costly. However, this does not mean that abuses
do not exist in the present system and a case can be made for reducing the present 17 years for
which patents are granted.
Ownership of essential raw materials is another barrier to entry. It has little social justification
except to the extent that the hope of gaining a monopoly in the supply of an essential raw
material leads to more prospecting. The Applying the Analysis on De Beers is an example.
Unfair competition is the last of the barriers and has no social justification at all, which is why
price cutting to bankrupt a rival is illegal. The problem here, though, is to prove that cutthroat
competition truly is what it appears to be.
Question 3
How does the demand curve faced by a purely monopolistic seller differ from that confronting a
purely competitive firm? Why does it differ? Of what significance is the difference? Why is the
pure monopolist’s demand curve typically not perfectly inelastic?
Answer
The demand curve facing a pure monopolist is downward sloping; that facing the purely
competitive firm is horizontal, perfectly elastic. This is so for the pure competitor because the
firm faces a multitude of competitors, all producing perfect substitutes. In these circumstances,
the purely competitive firm may sell all that it wishes at the equilibrium price, but it can sell
nothing for even so little as one cent higher. The individual firm’s supply is so small a part of the
total industry supply that it cannot affect the price.
The monopolist, on the other hand, is the industry and therefore is faced with a normal
downward-sloping industry demand curve. Being the entire industry, the monopolist’s supply is
big enough to affect prices. By decreasing output, the monopolist can force the price up.
Increasing output will drive it down.
8-2
Education.
Part of the demand curve facing a pure monopolist could be perfectly inelastic; if the monopolist
put only a very few items on the market, it is possible the firm could sell them all at, say, $1, or
$2, or $3. But it is the very fact that the monopolist could sell the same amount at higher and
higher prices that would ensure that the profit-maximizing monopolist would not, in fact, sell in
this perfectly inelastic range of the demand curve. Indeed, the monopolist would not sell in even
the still slightly inelastic range of the demand curve. The reason is that so long as the demand
curve is inelastic, MR must be negative, but since the MC of any item can hardly be negative
also, the monopolist’s profit must decrease if it produces here. To equate a positive MR with
MC, the monopolist must produce in the elastic range of its demand curve.
Question 4
Use the following demand schedule for a pure monopolist to calculate total revenue and marginal
revenue at each quantity. Plot the monopolist’s demand curve and marginal-revenue curve, and
explain the relationships between them. Explain why the marginal revenue of the fourth unit of
output is $3.50, even though its price is $5. What generalization can you make as to the
relationship between the monopolist’s demand and its marginal revenue? Suppose the marginal
cost of successive units of output was zero. What output would the single-price monopolist
produce, and what price would it charge?
8-3
Education.
Answer
To calculate total revenue, multiply price (P) by quantity demanded (Q): TR = P × Q.
To calculate marginal revenue, find the change in total revenue for each unit demanded: MR =
ΔTR = TRi+1 – TRi. See the table below.
Price (P) Quantity Total Revenue Marginal

Demanded (Q) (TR) Revenue (MR)
$7.00 0 $ 0.00 NA
6.50 1 6.50 $ 6.50
6.00 2 12.00 5.50
5.50 3 16.50 4.50
5.00 4 20.00 3.50
4.50 5 22.50 2.50
4.00 6 24.00 1.50
3.50 7 24.50 0.50
3.00 8 24.00 –0.50
2.50 9 22.50 –1.50
Because TR is increasing at a diminishing rate, MR is declining. When TR turns downward

(starts decreasing), MR becomes negative.
Marginal revenue is below D because to sell an extra unit, the monopolist must lower the price
on the marginal unit as well as on each of the preceding units sold. Four units sell for $5.00 each,
but three of these four could have been sold for $5.50 had the monopolist been satisfied to sell
only three. Having decided to sell four, the monopolist had to lower the price of the first three
from $5.50 to $5.00, sacrificing $.50 on each for a total of $1.50. This “loss” of $1.50 explains
the difference between the $5.00 price obtained on the fourth unit of output and its marginal
revenue of $3.50.
Demand is elastic from P = $6.50 to P = $3.50, a range where TR is rising. The curve is of
unitary elasticity at P = $3.50, where TR is at its maximum. The curve is inelastic from then on
as the price continues to decrease and TR is falling. When MR is positive, demand is elastic.
When MR is zero, demand is of unitary elasticity. When MR is negative, demand is inelastic.
If MC is zero, the monopolist should produce seven units, which is the last complete unit where
MR still exceeds MC. It would never produce where demand is inelastic because MR is negative
there while MC is positive.
8-4
Education.
The graph below summarizes the analysis discussed above.
Question 5
Assume a monopolistic publisher has agreed to pay an author 10 percent of the total revenue
from the sales of a text. Will the author and the publisher want to charge the same price for the
text? Explain.
Answer
The publisher is a monopolist seeking to maximize profits. This will occur at the quantity of
output where MC = MR. (See figure below.)
8-5
Education.
The author who will receive 10 percent of the total revenue will maximize his payment if the
book is priced where MR = 0. This will occur where the price elasticity of demand is equal to 1
and total revenue is maximum. (See figure below.)
8-6
Education.
The author would prefer a lower price than the publisher. Consult the graph above and compare
the price charged where MC = MR and the price that would be necessary to maximize total
revenue when MR = 0. This is a highly unlikely outcome since the publisher, whether
economically literate or not, is certain to recognize the revenue-maximizing price as
disadvantageous.
8-7
Education.
Question 6
Assume that a pure monopolist and a purely competitive firm have the same unit costs. Contrast
the two with respect to (a) price, (b) output, (c) profits, (d) allocation of resources, and (e) impact
on the distribution of income. Since both monopolists and competitive firms follow the MR =
MC rule in maximizing profits, how do you account for the different results? Why might the
costs of a purely competitive firm and those of a monopolist be different? What are the
implications of such a cost difference?
Answer
With the same costs, the pure monopolist will charge a higher price, have a smaller output, and
have higher economic profits in both the short run and the long run than the pure competitor. As
a matter of fact, the pure competitor will have no economic profits in the long run even though it
might have some in the short run. Because the monopolist does not produce at the point of
minimum ATC and does not equate price and MC, its allocation of resources is inferior to that of
the pure competitor. Specifically, resources are underallocated to monopolistic industries. Since
a pure monopolist is more likely than the pure competitor to make economic profits in the short
run and is, moreover, the only one of the two able to make economic profits in the long run, the
distribution of income is more unequal with monopoly than with pure competition.
In pure competition, MR = P because the firm’s supply is so insignificant a part of industry

supply that its output has no effect on price. It can sell all that it wishes at the price established
by demand and the total industry supply. The firm cannot force the price up by holding back part
or all of its supply.
The monopolist, on the other hand, is the industry. When it increases the quantity it produces,
price drops. When it decreases the quantity it produces, price rises. In these circumstances, MR
is always less than price for the monopolist; to sell more it must lower the price on all units,
including those it could have sold at the higher price had it not put more on the market. When the
monopolist equates MR and MC, it is not selling at that price: The monopolist’s selling price is
on the demand curve, vertically above the point of intersection of MR and MC. Thus, the
monopolist’s price will be higher than the pure competitor’s.
Economies of scale may be such as to ensure that one large firm can produce at lower cost than a
multitude of small firms. This is certainly the case with most public utilities. And in such
industries as basic steel-making and car manufacturing, pure competition would involve a very
high cost. On the other hand, monopolies may suffer from X-inefficiency, the inefficiency that a
lack of competition allows. Monopolies may also incur nonproductive costs through “rent-
seeking” expenditures. For example, they may try to influence legislation that protects their
monopoly powers.
8-8
Education.
Question 7
Critically evaluate and explain each statement:
a. Because they can control product price, monopolists are always assured of profitable
production by simply charging the highest price consumers will pay.
b. The pure monopolist seeks the output that will yield the greatest per-unit profit.
c. An excess of price over marginal cost is the market’s way of signaling the need for more
production of a good.
d. The more profitable a firm, the greater its monopoly power.
e. The monopolist has a pricing policy; the competitive producer does not.
f. With respect to resource allocation, the interests of the seller and of society coincide in a
purely competitive market but conflict in a monopolized market.
Answer
a. The statement is false. If the monopolist charged the highest price consumers would pay, it
would sell precisely one unit! (Conceivably, it might sell a little more than one if more than one
consumer made matching bids for the first unit offered.) It is highly unlikely that the sale of one
unit (or a very few) would cover the very high AFC of one or a very few units. And even a
monopolist that does produce sensibly where MR = MC may still suffer a loss: P can be below
ATC at all levels.
b. The statement is false. The monopolist seeks the output that will yield the greatest profit. The
profit equation is Q(P – ATC). It is not (P – ATC). If the monopolist sells one unit for $100
when ATC is $60, then its profit per unit and total profit are $40 (= $100 – $60). Nice, but if the
same monopolist can sell 1,000 units for $40 when ATC is $39, then, though its per-unit profit is
a mere $1 (= $40 – $39), its total profit is $1,000 [= 1,000($40 – $39)]. This is much better than
$40.
c. The statement is true. Price is the value society sets on the last item produced. Marginal cost is
the value to society of the alternative production forgone when the last item is produced. When P
> MC, society is willing to pay more than the opportunity cost of the last item’s production.
d. This statement can be true and probably is in many cases. Large profits allow expansion to
gain economies of scale and thus prevent the late entry of smaller rivals. Large profits also
enable the firm to price below cost, to engage (illegally) in a price war. Moreover, large profits in
the short run are often associated with monopoly power. In the long run, only a firm with
monopoly power can gain economic profits; in pure competition such profits would invariably be
competed away by a new entry.
8-9
Education.
e. The statement is true. The monopolist must equate MR and MC. Having determined at what
quantity this equality occurs, the monopolist simultaneously sets price. This price differs at each
output because the demand curve is downsloping. The pure competitor accepts the price given by
total industry supply and demand. Knowing this externally given price, the competitor then
equates it with the firm’s MC and produces the amount determined by this equality.
f. The statement is true. In pure competition, P = MC. This means that the value society sets on
the last item produced (its price) is equal to the cost of the alternative commodities that are not
produced because of producing the last item of the commodity in question (its MC). In
monopoly, P > MC. This means that society values the last item produced more than its cost.
Question 8
U.S. pharmaceutical companies charge different prices for prescription drugs to buyers in
different nations, depending on elasticity of demand and government-imposed price ceilings.
Explain why these companies, for profit reasons, oppose laws allowing reimportation of their
drugs back into the United States.
Answer
U.S. pharmaceutical companies are price discriminating based in part on the different elasticities
of demand in different nations. Reimportation allows reselling of the goods, making it more
difficult to price discriminate. To the extent they could still charge different prices, the difference
in prices would have to be small enough so that reimportation was not profitable. Prohibition of
reimportation would allow pharmaceutical companies to charge the profit-maximizing price in
each nation, without fear of being undercut back in the United States by those in nations where
the drugs are cheaper.
8-10
Education.
Question 9
Why have firms such as Google, Facebook, and Amazon gained monopoly power in search,
social media, and online retail, respectively, despite potential competitors having virtually
unrestricted access to the Internet? What economic concepts explain their ability to monopolize
these markets?
Answer
Google, Facebook, and Amazon all benefit from network effects. In search, Google’s network
effect has created a barrier to entry that prevents competitors from gaining a foothold in the
search-engine segment. This is maintained because both customers and advertisers want to use
the search engine that has the furthest reach. The company currently controls 70 percent of the
U.S. search market and generates a majority of its revenue from search ads.
The purpose of social-networking sites it to interact with other people. The fact that Facebook is
the most popular, is one of the things that helps keep it the most popular. Why would users
choose to join a site with fewer other users, when they can be a part of the social-networking site
with the most activity. This also means most companies will choose to advertise on Facebook
instead of its rivals.
As the world’s largest retailer, Amazon also benefits from the network effect. Sellers and
customers do business on Amazon because it already has an enormous numbers of users. Behind
the scenes, Amazon also benefits from economies of scale in data and logistics. Amazon benefits
greatly from its economies of scale. Due to its large number of sales, the cost per sale for
Amazon is fairly low. In order to fulfill retail orders, Amazon operates dozens of massive
distribution warehouses. A warehouse’s operating costs rise slower than its size, meaning larger
warehouses have lower operating costs per square foot, compared to smaller warehouses. An
online retailer that does less business would have higher costs per sale; and therefore, have to
charge higher prices to consumers. Most consumers would continue to choose Amazon due to
the lower prices. Economies of scale make it very hard for a smaller retailer to compete with
Amazon. Amazon’s server farms also benefit from economies of scale because larger server
farms generate lower costs per sale than smaller server farms. This allows Amazon to undersell
rivals operating on smaller scales.
Question 10
Under what law and on what basis did the federal district court find Microsoft guilty of violating
the Sherman Act? What was the initial district court’s remedy? How did Microsoft fare with its
appeal to the court of appeals? What was the final negotiated remedy?
Answer
Microsoft was found guilty of violating Section 2 of the Sherman Act. The court ruled that
Microsoft had taken unlawful actions to maintain its Windows monopoly by tying Internet
Explorer to Windows at no charge. Also under license from Sun, Microsoft developed Windows-
related Java software that made Sun’s own software incompatible with Windows. The district
8-11
Education.
court’s remedy was to break Microsoft into two companies that were prohibited from entering
into joint ventures. The court of appeals upheld the lower court ruling that Microsoft had violated
Section 2 but altered the remedy. The final remedy is behavioral, as Microsoft is not required to
split into two companies, but they must alter their business practices.
8-12
Education.
PROBLEMS
Problem 1
Assume that the most efficient production technology available for making vitamin pills has the
cost structure given in the following table. Note that output is measured as the number of bottles
of vitamins produced per day and that costs include a normal profit.
a. What is ATC per unit for each level of output listed in the table?
b. Is this a decreasing-cost industry? (Answer yes or no).
c. Suppose that the market price for a bottle of vitamins is $2.50 and that at that price the total
market quantity demanded is 75,000,000 bottles. How many firms will there be in this industry?
d. Suppose that, instead, the market quantity demanded at a price of $2.50 is only 75,000. How
many firms do you expect there to be in this industry?
e. Review your answers to parts b, c, and d. Does the level of demand determine this industry’s
market structure?
Answer
a. See the table below for the ATC values.
Output TC MC ATC
25,000 $100,000 $0.50 $4.00
50,000 150,000 1.00 3.00
75,000 187,500 2.50 2.50
100,000 275,500 3.00 2.76
b. No, the ATC cost does NOT decline for all levels of output.
8-13
Education.
c. Since $2.50 is minimum ATC, firms will produce at this level of output. Any firm that
deviated from this level would incur a higher ATC and would be unprofitable at the market price
of $2.50.
The total number of firms can be found by dividing the market quantity demanded by output
produced by a firm at the ATC of $2.50, which is 75,000.
Number of firms = Market quantity demanded/Output minimum ATC = 75,000,000/75,000 =

1,000.
d. Suppose that instead the market quantity demanded at a price of $2.50 is only 75,000. How
The total number of firms under this assumption is:
Number of firms = Market quantity demanded/Output minimum ATC = 75,000/75,000 =1.
e. Yes, high demand will result in a competitive industry while very low demand can result in a
monopoly industry.
Problem 2
A new production technology for making vitamins is invented by a college professor who
decides not to patent it. Thus, it is available for anybody to copy and put into use. The TC per
bottle for production up to 100,000 bottles per day is given in the following table.
a. What is ATC for each level of output listed in the table?

b. Suppose that for each 25,000-bottle-per-day increase in production above 100,000 bottles per
day, TC increases by $5000 (so that, for instance, 125,000 bottles per day would generate total
costs of $85,000 and 150,000 bottles per day would generate total costs of $90,000). Is this a
decreasing-cost industry?
c. Suppose that the price of a bottle of vitamins is $1.33 and that at that price the total quantity
demanded by consumers is 75,000,000 bottles. How many firms will there be in this industry?
8-14
Education.
d. Suppose that, instead, the market quantity demanded at a price of $1.33 is only 75,000. How
e. Review your answers to parts b, c, and d. Does the level of demand determine this industry’s
market structure?
f. Compare your answer to part d of this problem with your answer to part d of problem 1. Do
both production technologies show constant returns to scale?
Answer
a. ATC = Total cost/Output
Output TC ATC
25,000 $50,000 $2.00
50,000 70,000 1.40
75,000 75,000 1.00
100,000 80,000 0.80
b. The last two rows provide the additional cost and output information (you could continue to
add rows for additional output).
Output TC ATC
25,000 $50,000 $2.00
50,000 70,000 1.40
75,000 75,000 1.00
100,000 80,000 0.80
125,000 $85,000 0.68
150,000 $90,000 0.60
From this additional information we can conclude this is a decreasing cost industry because ATC
falls as output increases at all levels.
c. Since this is a decreasing cost industry, there will only be one firm.
d. Again, since this is a decreasing cost industry, there will only be one firm.
e. No. Since this is a decreasing cost industry, there will only be one firm regardless of demand.
f. No. The second technology (this problem) has increasing returns to scale technology.
8-15
Education.
Problem 3
Suppose a pure monopolist is faced with the demand schedule shown below and the same cost
data as the competitive producer discussed in problem 4 at the end of Chapter 7. Calculate the
missing total-revenue and marginal-revenue amounts, and determine the profit-maximizing price
and profit-maximizing output for this monopolist. What is the monopolist’s profit? Verify your
answer graphically and by comparing total revenue and total cost.
Answer
Production and Costs
Total Average Average Average
Product Fixed Variable Total Marginal
Cost Cost Cost Cost
0 na na na na
1 $60.00 $45.00 $105.00 $45
2 30.00 42.50 72.50 40
3 20.00 40.00 60.00 35
4 15.00 37.50 52.50 30
5 12.00 37.00 49.00 35
6 10.00 37.50 47.50 40
7 8.57 38.57 47.14 45
8 7.50 40.63 48.13 55
9 6.67 43.33 50.00 65
10 6.00 46.50 52.50 75
8-16
Education.
Demand
Price Quantity Total Marginal

Demanded Revenue Revenue
$115 0 $ 0
100 1 100 $100
83 2 166 66
71 3 213 47
63 4 252 39
55 5 275 23
48 6 288 13
42 7 294 6
37 8 296 2
33 9 297 1
29 10 290 –7
To calculate total revenue, multiply price (P) by quantity demanded (Q): TR = P × Q.
To calculate marginal revenue, find the change in total revenue for each unit demanded: MR =
ΔTR = TRi+1 – TRi.
See table below.

Quantity Total Marginal
Price
$115 0 $0 NA
100 1 100 100
83 2 166 66
71 3 213 47
63 4 252 39
55 5 275 23
48 6 288 13
42 7 294 6
37 8 296 2
33 9 297 1
29 10 290 –7
8-17
Education.
To determine the profit-maximizing price and profit-maximizing output for this monopolist, use
the cost data below.
Average Average Average
Total Marginal
Fixed Variable Total
Product Cost
Cost Cost Cost
0
1 $60.00 $45.00 $105.00 $45
2 30.00 42.50 72.50 40
3 20.00 40.00 60.00 35
4 15.00 37.50 52.50 30
5 12.00 37.00 49.00 35
6 10.00 37.50 47.50 40
7 8.57 38.57 47.14 45
8 7.50 40.63 48.13 55
9 6.67 43.33 50.00 65
10 6.00 46.50 52.50 75
To find the profit-maximizing quantity, compare marginal revenue from the first table above
with the marginal cost from the second table.
Price (P) Quantity Marginal Marginal
Demanded Revenue Cost (MC)
(Q) (MR)
$115 0 NA NA
100 1 $100 $45
83 2 66 40
71 3 47 35
63 4 39 30
55 5 23 35
48 6 13 40
42 7 6 45
37 8 2 55
33 9 1 65
29 10 –7 75
Starting with the first unit, (MR = $100) > (MC = $45), produce this unit. The same logic applies
to units two, three, and four. However, for the fifth unit, (MR = $23) < (MC = $35). Thus, the
firm does NOT produce this unit. (NOTE: We have modified the MR = MC rule to MR > MC,
which is more general. Produce all units where MR > MC.)
8-18
Education.
The profit-maximizing quantity produced is four units.
The profit-maximizing price is the price associated with the profit-maximizing quantity, four
units. Thus, the profit-maximizing price is $63.
The monopolist’s profit equals total revenue minus total cost. Total revenue equals $252 at four
units of output. We still need total cost. From the “cost data” table we see that average total cost
(ATC) equals $52.50. Since ATC equals total cost divided by quantity, we can determine total
cost from the ATC cost data.
ATC = Total cost/Quantity

or
Total cost = Quantity × ATC = 4 × $52.50 = $210
Profit = $252 – $210 = $42
Another approach is to use the following relationship.
Profit = TR – TC
Divide through by Q
Profit/Q = TR/Q – TC/Q
Since TR/Q = Average Revenue = P and TC/Q = ATC, we have:
Profit/Q = P – ATC
Rearranging:
Profit = Q(P – ATC) = 4($63 – $52.50) = 4 × $10.5 = $42.
Either approach above will work.
8-19
Education.
Problem 4
Suppose that a price-discriminating monopolist has segregated its market into two groups of
buyers. The first group is described by the demand and revenue data that you developed for
problem 3. The demand and revenue data for the second group of buyers is shown in the table.
Assume that MC is $13 in both markets and MC = ATC at all output levels. What price will the
firm charge in each market? Based solely on these two prices, which market has the higher price
elasticity of demand? What will be this monopolist’s total economic profit?
Answer
Quantity Total Marginal

Price
$71 0 $ 0
63 1 63 $63
55 2 110 47
48 3 144 34
42 4 168 24
37 5 185 17
33 6 198 13
29 7 203 5
Let’s start with the second market (table above). Marginal cost is $13 for all output levels. The
marginal revenue from producing the sixth unit is $13 (= $198 – $185), so this is the last unit
produced by the firm for this market.
8-20
Education.
Thus, the marginal revenue equals marginal cost rule results in six units being produced in this
market (MR = MC = $13 at 6 units in this market).
The price the firm charges in this market is $33, which is the price associated with the sixth unit.
The firm’s profit in this market can be found using the following relationship (see problem 3 in
this chapter for derivation).
ProfitMarket 2 = Q(P – ATC) = 6($33 – $13) = 6 × $20 = $120.
The first market is found in the table below:

Price (P) Quantity Total Marginal
Demanded Revenue (TR) Revenue
(Q) (MR)
$115 0 $ 0 NA
100 1 100 100
83 2 166 66
71 3 213 47
63 4 252 39
55 5 275 23
48 6 288 13
42 7 294 6
37 8 296 2
33 9 297 1
29 10 290 –7
Again, marginal cost is $13 for all output levels.
The marginal revenue equals marginal cost rule results in six units being produced in this market
as well (MR = MC = $13 at 6 units in this market).
The price the firm charges in this market is $48, which is the price associated with the sixth unit.
The firm’s profit in this market can be found using the following relationship (see problem 3 in
this chapter for derivation).
8-21
Education.
Solution Manual for Microeconomics, Brief Edition, 3rd Edition, Campbell McConnell, Stanley
ProfitMarket 1 = Q(P – ATC) = 6($48 – $13) = 6 × $35 = $210.
The combined profit from both markets gives us total profit.
Total profit = ProfitMarket 1 + ProfitMarket 2 = $120 + $210 = $330
Since the firm charges a lower price in the second market (a price of $48), this market has the
higher price elasticity of demand.
8-22
Education.
Visit TestBankBell.com to get complete for all chapters

Solution Manual For Microeconomics Brief Edition 3rd Edition Campbell Mcconnell Stanley Brue Sean Flynn Full Download

Uploaded by

Copyright:

Available Formats

You might also like

Solution Manual For Microeconomics Brief Edition 3rd Edition Campbell Mcconnell Stanley Brue Sean Flynn Full Download

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Solution Manual For Microeconomics Brief Edition 3rd Edition Campbell Mcconnell Stanley Brue Sean Flynn Full Download

Uploaded by

Copyright:

Available Formats

Solution Manual for Microeconomics, Brief Edition, 3rd Edition, Campbell McConnell, Stanley

Solution Manual for Microeconomics, Brief Edition,

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

McConnell, Brue, Flynn

Price (P) Quantity Total Revenue Marginal

Because TR is increasing at a diminishing rate, MR is declining. When TR turns downward

The graph below summarizes the analysis discussed above.

In pure competition, MR = P because the firm’s supply is so insignificant a part of industry

Number of firms = Market quantity demanded/Output minimum ATC = 75,000,000/75,000 =

The total number of firms under this assumption is:

Number of firms = Market quantity demanded/Output minimum ATC = 75,000/75,000 =1.

a. What is ATC for each level of output listed in the table?

Price Quantity Total Marginal

To calculate total revenue, multiply price (P) by quantity demanded (Q): TR = P × Q.

See table below.

The profit-maximizing quantity produced is four units.

ATC = Total cost/Quantity

Another approach is to use the following relationship.

Profit/Q = TR/Q – TC/Q

Since TR/Q = Average Revenue = P and TC/Q = ATC, we have:

Either approach above will work.

Quantity Total Marginal

ProfitMarket 2 = Q(P – ATC) = 6($33 – $13) = 6 × $20 = $120.

The first market is found in the table below:

Again, marginal cost is $13 for all output levels.

Chapter - 08 Pure Monopoly

ProfitMarket 1 = Q(P – ATC) = 6($48 – $13) = 6 × $35 = $210.

The combined profit from both markets gives us total profit.

Total profit = ProfitMarket 1 + ProfitMarket 2 = $120 + $210 = $330

Visit TestBankBell.com to get complete for all chapters

You might also like