CASE 1 PACIFIC COPPER INDUSTRY Pacific copper industry, a family-owned business,

Question

CASE 1
PACIFIC COPPER INDUSTRY
Pacific copper industry, a family-owned business, produces copperthat is
purchased by other firms to make wire, tubing and sheets. Thecopper is
produced in 1000 pounds ingot and is identifiable as having beenproduced by
Pacific copper only by the firm’s name stamped on each ingot(brick).
PART 1
Pacific operates the only copper mine and smelter in the SouthPacific region.
Because imports are limited by high transportation costs, the firmis essentially a
monopoly with respect to the sale of copper ingots. The only realsource of
competition comes from scrap copper that has been melted back intoingot form.
However, this scrap copper is considered inferior by buyers andsells for a
substantially lower price.
Pacific copper sells to approximately 200 firms in the region.Individual
purchases are typically made by experienced buyers, but orders tendto be small
and frequent to allow buyers to keep their inventory cost down.Although Pacific
maintain a publish list of prices, it is not uncommon for preferredcustomers to be
secretly quoted a lower price or better credit terms.
Management estimates the demand for the firm’s product isgiven by the
following equation.
P = 2975 – 0.10Q
Where P is the price per ton and Q is the number of tons sold peryear.
Regression analysis suggests that the firm’s average andmarginal cost equation
are:
AC = 2393 – 0.10Q
MC = 2393 – 0.05Q
Where, AC and MC are average and marginal costs per ton.
PART 2
After 2 years, eight new firms enter the market. At the presenttime, Pacific has a
50% share of copper ingot sales and the rest of the market isshared equally by
the eight new firms. During a recreational outing in ALASKA, themanagers of the
nine copper producing firms decide to collude and set the price ofingot at the
monopoly level.
Assignment Eco401 Spring 2009
Read the above case study carefully and write down the correctoption
number (e-g A, B, C, D) in the given Excel file.
1- If the objective of Pacific management is short run profitmaximization
then the optimal level of output for the Pacific firm is:
Marks: 5
A. 3,798
B. 3,880
C. 3,910
D. 4,005
2- The optimal level of price for the Pacific firm is:
Marks: 2
A. $2,587
B. $2,592
C. $2,602
D. $2,680
3- The amount of total cost of producing copper ingot by thePacific firm is:
Marks: 3
A. $76, 82,220
B. $77, 00,997
C. $77, 79,400
D. $78, 99,009
4- The amount of total revenue earned by the Pacific firm is:
Marks: 2
A. $1,00,16,280
B. $1,00,36,500
C. $1,00, 37,560
D. $1,01, 56,820
5- The amount of total profit earned by the Pacific firm is:
Marks: 2
A. $20, 01,520
B. $20, 50,205
C. $21, 25,350
D. $22, 58,160
Assignment Eco401 Spring 2009
6- Periodically, Pacific advertises in local businesspublications.
Advertising cost of Pacific firm is estimated to be $1000 per year.What will
be the impact of this advertising cost on the price level of copperingot?
Marks: 1
A. The price level of copper ingot will rise.
B. The price level of copper ingot will fall.
C. The price level of copper ingot will remain the same.
D. The price level of copper ingot will rise first and thenfall.
7- When the nine firms decide to cooperate with each other in thesetting of
prices and quantities, this is an example of:
Marks: 1
A. Collusion.
B. Price leadership.
C. Monopolistic competition.
D. Perfect competition.
8- According to the demand function estimated by the Pacificmanagement,
which of the following statements is TRUE about the demand curvefor
copper ingot?
Marks: 1
A. Demand curve is upward-sloping.
B. Demand curve is downward-sloping.
C. Demand curve is vertical.
D. Demand curve is horizontal.
9- For a monopolist, changes in demand will lead to changes in:
Marks: 1
A. Price with no change in output.
B. Output with no change in price.
C. Both price and output.
D. None of the given options.
Assignment Eco401 Spring 2009
10- Use the following two statements to answer this question:
I. For a monopolist, at every output level, average revenue isequal to
price.
II. For a monopolist, at every output level, marginal revenue isequal to
price.
Marks: 1
A. Both I and II are true.
B. I is true, and II is false.
C. I is false, and II is true.
D. Both I and II are false.
11- Which of the following is NOT true for monopoly?
Marks: 1
A. The profit maximizing output is the one at which marginalrevenue and
marginal costs are equal.
B. The profit maximizing output is the one at which the differencebetween
total revenue and total cost is largest.
C. The monopolist's demand curve is the same as the market demandcurve.
D. At the profit maximizing output, price equals marginal cost.

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