Chapter 10: Labor demand (page 369)
How does a change in the demand for a product affect the demand for labor?
law of demand
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Will an increase in the demand for a monopolist’s product always result in a higher price? Explain. Will an increase in the supply facing a monopsonist buyer always result in a lower price? Explain.
A firm faces the following average revenue (demand)curve:
P = 120 - 0.02Q
where Q is weekly production and P is price, measured in cents per unit. The firm’s cost function is given by C = 60Q + 25,000. Assume that the firm maximizes profits.
a. What is the level of production, price, and total profit per week?
b. If the government decides to levy a tax of 14 cents per unit on this product, what will be the new level of production, price, and profit?
Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of \(40 per unit.
a. If the elasticity of demand for the product is -2, find the marginal cost of the last unit produced.
b. What is the firm’s percentage markup of price over marginal cost?
c. Suppose that the average cost of the last unit produced is \)15 and the firm’s fixed cost is $2000. Find the firm’s profit.
A certain town in the Midwest obtains all of its electricity from one company, Northstar Electric. Although the company is a monopoly, it is owned by the citizens of the town, all of whom split the profits equally at the end of each year. The CEO of the company claims that because all of the profits will be given back to the citizens,it makes economic sense to charge a monopoly price for electricity. True or false? Explain.
A monopolist faces the following demand curve: Q = 144/P2 where Q is the quantity demanded and P is price. Its average variable cost is AVC = Q1/2 and its fixed cost is 5.
a. What are its profit-maximizing price and quantity? What is the resulting profit?
b. Suppose the government regulates the price to be no greater than $4 per unit. How much will the monopolist produce? What will its profit be?
c. Suppose the government wants to set a ceiling price that induces the monopolist to produce the largest possible output. What price will accomplish this goal?
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