When selling e-books, music on iTunes, and downloadable software, the marginal c

Question

When selling e-books, music on iTunes, and downloadable software, the marginal cost of producing and selling one more unit of output is essentially zero: MC = 0. All firms are trying to maximize their profits (profit = TR – TC). Let's think about a monopoly in this kind of market. In the special case where marginal cost is zero, "profit maximization" is equivalent to which of the following statements? "Maximize total revenue." "Minimize total cost." "Minimize average cost." "Maximize average revenue." Price per pill Dem and Profit- maximizing price $12.50 Profit 2.50 Average cost 0.50 _Marginal cost 80 Marginal Quantity in millions of pills Profit- maximizing quantity revenue

Explanation / Answer

Answer.)

Q12.) "Maximize total revenue."

for monopolist, equilibrium output is achieved when MR = MC. Accordingly, if MC = 0 then MR will also be zero. Total revenue is maximized when marginal revenue is zero.

Q13.) inelastic; few

The fewer substitutes that exist for a good, the more inelastic the demand curve. A monopolist's markup of price over marginal cost is much higher when the demand curve is relatively inelastic

Q14.) more; there are fewer substitutes for trendy shoes than for ordinary shoes

Because there are fewer substitutes for trendy shoes than ordinary shoes, demand is likely to be more inelastic. Goods with relatively inelastic demand are more likely to have a larger markup.

Q15.) less; there are few close substitutes for popcorn in a movie theater. In addition, there are many close substitutes for a given street vendor's popcorn in New York City

Because outside snacks are not permitted in a movie theater, there are few close substitutes available for movie theater popcorn. This implies that the demand for movie theater popcorn will be relatively inelastic, leading movie theaters to charge a bigger markup. In addition, there are many close substitutes for a given street vendor's popcorn in New York City.

Q16.) more; the demand for a dandruff cure is more elastic than the demand for a powerful antibiotic

Because there are good substitutes for a dandruff cure, the demand for a dandruff shampoo is more elastic than the demand for a powerful antibiotic. Firms selling goods with demand curves that are less elastic are more likely to charge a higher markup.

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