D. Miscellaneous 34. Referring to the demand and MR relationships in Figure C, e
ID: 1108950 • Letter: D
Question
D. Miscellaneous
34. Referring to the demand and MR relationships in Figure C, explain why a monopolist will never produce on the inelastic portion of the demand curve. (Hints: Chapter 11 of your text and Problem Set 2. ____________________________________________________________________
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35. An imperfectly competitive firm (not necessarily a monopolist) faces the following monthly demand curve: Q = 3600 – 40P. It is currently selling 1600 units per month at P = 50. If it decides to lower its price to P = 40 starting next month: What will be its monthly loss of revenue from sale at the lower price of the units that could have been sold at the higher price? _______________ What will be its monthly gain in revenue from additional sales? _____________
36. One of the assumptions made about the Loch Caledonia fishing boat rental industry in Parts B and C is that “demand conditions are unaffected by industry scale.” Briefly explain why this assumption is unrealistic for this particular industry.
Explanation / Answer
34.A monopolist will never produce on the inelastic portion of the demand curve as the MR is negative and MC is positive. That is the revenue from additional unit produced is negative and the cost incurred is positive. Also it shows that MR is less than MC at this point.
35. The current Q = 1600 and P = 50 so TR = P*Q = 1600*50 = 80000
At P = 40, Q = 3600-40*40 = 2000 TR = 2000*40 = 80000 No loss/gain of revenue
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