18. Profits will be higher for a patented drug with an _________ demand, and a d

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18. Profits will be higher for a patented drug with an _________ demand, and a drug with a highly elastic demand is ____ likely to be "important" than a patented drug with an inelastic demand. elastic; more elastic; less inelastic; more inelastic; less 19. Complete the following sentence: If a pharmaceutical company is trying to decide what kinds of drugs to research, it will probably be lured toward inventing: drugs with few good substitutes, because the demand for these drugs will be more inelastic drugs with few good substitutes, because the demand for these drugs will be more elastic drugs with many good substitutes, because the demand for these drugs will be more elastic drugs with many good substitutes, because the demand for these drugs will be more inelastic 20. Evaluate the accuracy of the following statements:
I. When a monopoly is maximizing its profits, price is greater than marginal cost.
II. For a monopoly producing a certain amount of output, price is less than marginal revenue. Both statements are true. I is true, II is false. I is false, II is true. Both statements are false. 21. Evaluate the accuracy of the following statements:
I. When a monopoly is maximizing its profits, marginal revenue equals marginal cost.
II. Ironically, if a government regulator sets a fixed price for a monopoly lower than the unregulated price, it is typically raising the marginal revenue of selling more output. Both statements are true. I is true, II is false. I is false, II is true. Both statements are false. 22. Evaluate the accuracy of the following statements:
I. In the United States, government regulation of cable TV cut the price of premium channels down to average cost.
II. When consumers have many options, monopoly markup is lower.
III. A patent is a government-created monopoly. All three statements are true. Statements I and II are true, but III is false. Statements II and III are true, but I is false. All three statements are false. 23. Tommy Suharto, the son of Indonesian President Suharto (in office from 1967 to 1998), owned a media conglomerate, Bimantara Citra. In their entertaining book, Economic Gangsters, economists Raymond Fisman and Edward Miguel compared the stock price of Bimantara Citra with that of other firms on Indonesia's stock exchange around July 4, 1996, when the government announced that President Suharto was traveling to Germany for a health checkup. What do you think happened to the price of Bimantara Citra shares relative to other shares on the Indonesian stock exchange that day? What does this suggest? Shares of Bimantara Citra likely rose by significantly more than shares in firms in other industries. This suggests that costs for firms in media-related industries were significantly more volatile than costs for firms in other industries. Shares of Bimantara Citra likely rose by significantly more than shares in firms without such close connections to the president. This suggests that corruption was rampant in Indonesia. Shares of Bimantara Citra likely fell by significantly more than shares in firms in other industries. This suggests that costs for firms in media-related industries were significantly more volatile than costs for firms in other industries. Shares of Bimantara Citra likely fell by significantly more than shares in firms without such close connections to the president. This suggests that corruption was rampant in Indonesia. 18. Profits will be higher for a patented drug with an _________ demand, and a drug with a highly elastic demand is ____ likely to be "important" than a patented drug with an inelastic demand. elastic; more elastic; less inelastic; more inelastic; less

Explanation / Answer

18. Inelastic; less

Profit will be higher when demand of good is inelastic because change in price does not affect its demand. So, firm can earn higher profit. Good whose demand is elastic is less important because people can reduce its consumption.

19. drugs with few good substitutes, because the demand for these drugs will be more inelastic

Researchers will always want to search goods who have less substitutes so that consumer will purchase their product even at higher price. When demand is inelastic then increase in price does not decrease demand of good and increases firm's profit.

20. Both statements are true.

Monopoly firm maximizes its profit where MR = MC and at this level of output, price is greater than MC. For initial quantity of output, price is less than MR.

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