Prob 8 1a. Merck, the producer of the patented cholesterol-lowering drug Zetia

Prob 8 1b. WaterWorks, a provider of piped water

Prob 8 1c. Chiquita, a supplier of bananas and owner of most banana plantations

Prob 8 1d. The Walt Disney Company, the creators of Mickey Mouse

Prob 8 3a. If the industry is perfectly competitive, what will be the total quantity produced? At what price?

Prob 8 3b. Which area reflects consumer surplus under perfect competition?

Prob 8 3c. If the industry is a monopoly, what quantity will the monopolist produce? Which price will it charge?

Prob 8 3d. Which area reflects the monopolist’s profit?

Prob 8 3e. Which area reflects consumer surplus under monopoly?

Prob 8 3f. Which area reflects the deadweight loss to society from monopoly?

Prob 8 4a. Calculate the total revenue and the marginal revenue per download.

Prob 8 4b. Bob is proud of the film and wants as many people as possible to download it. Which price would he choose? How many downloads would be sold?

Prob 8 4c. Bill wants as much total revenue as possible. Which price would he choose? How many downloads would be sold?

Prob 8 4d. Ben wants to maximize profit. Which price would he choose? How many downloads would be sold?

Prob 8 4e. Brad wants to charge the efficient price. Which price would he choose? How many downloads would be sold?

Prob 8 5a. For each price in the table, calculate the total revenue from selling peeps and the marginal revenue per peep.

Prob 8 5b. At what quantity will Jimmy’s profit be maximized? What price will he charge? What will his total profit be?

Prob 8 5c. Jimmy’s landlady complains about all the visitors coming into the building and tells Jimmy to stop selling peeps. Jimmy discovers, however, that if he gives the landlady $0.20 for every peep he sells, she will stop complaining. What effect does the $0.20-per-peep bribe have on Jimmy’s marginal cost per peep? What is the new profit-maximizing quantity of peeps? What effect does the $0.20-per-peep bribe have on Jimmy’s total profit?

Prob 8 6a. Calculate De Beers’s total revenue and its marginal revenue. From your calculation, draw the demand curve and the marginal revenue curve.

Prob 8 6b. Explain why De Beers faces a downward-sloping demand curve.

Prob 8 6c. Explain why the marginal revenue from an additional diamond sale is less than the price of the diamond.

Prob 8 6d. Suppose De Beers currently charges $200 for its diamonds. If it lowers the price to $100, how large is the price effect? How large is the quantity effect?

Prob 8 6e. Add the marginal cost curve to your diagram from part a and determine which quantity maximizes De Beers’s profit and which price De Beers will charge.

Prob 8 7a. If De Beers charges the monopoly price, how large is the individual consumer surplus that each buyer experiences? Calculate total consumer surplus by summing the individual consumer surpluses. How large is producer surplus?

Prob 8 7b. What is the perfectly competitive price? What quantity will be sold in this perfectly competitive market?

Prob 8 7c. At the competitive price and quantity, how large is the consumer surplus that each buyer experiences? How large is total consumer surplus? How large is producer surplus?

Prob 8 7d. Compare your answer to part c to your answer to part a. How large is the deadweight loss associated with monopoly in this case?

Prob 8 8a. Calculate the total revenue and the marginal revenue per album.

Prob 8 8b. The marginal cost of producing each album is constant at $6. To maximize profit, what level of output should Download Records choose, and which price should it charge for each album?

Prob 8 8c. Mary renegotiates her contract and now needs to be paid a higher royalty per album. So the marginal cost rises to be constant at $14. To maximize profit, what level of output should Download Records now choose, and which price should it charge for each album?

Prob 8 9a. If the government does not regulate this monopolist, which price will it charge? Illustrate the inefficiency this creates by shading the deadweight loss from monopoly.

Prob 8 9b. If the government imposes a price ceiling equal to the marginal cost, $0.30, will the monopolist make profits or lose money? Shade the area of profit (or loss) for the monopolist. If the government does impose this price ceiling, do you think the firm will continue to produce in the long run?

Prob 8 9c. If the government imposes a price ceiling of $0.50, will the monopolist make a profit, lose money, or break even?

Prob 8 11a. Some critics of the merger argued that, in many parts of the country, a merger between the two companies would create a monopoly in the office supply superstore market. Based on the FTC’s argument and its mission to challenge mergers that would likely lead to higher prices, do you think it allowed the merger?

Prob 8 11b. Staples and Office Depot argued that, while in some parts of the country they might create a monopoly in the office supply superstore market, the FTC should consider the larger market for all office supplies, which includes many smaller stores that sell office supplies (such as grocery stores and other retailers). In that market, Staples and Office Depot would face competition from many other, smaller stores. If the market for all office supplies is the relevant market that the FTC should consider, would it make the FTC more or less likely to allow the merger?

Prob 8 12a. Assume that BASF is the only producer of vitamin D and acts as a monopolist. It currently produces 40 tons of vitamin D at $4 per ton. If BASF were to produce 10 more tons, what would be the price effect for BASF? What would be the quantity effect? Would BASF have an incentive to produce those 10 additional tons?

Prob 8 12b. Now assume that Roche enters the market by also producing vitamin D and the market is now a duopoly. BASF and Roche agree to produce 40 tons of vitamin D in total, 20 tons each. BASF cannot be punished for deviating from the agreement with Roche. If BASF, on its own, were to deviate from that agreement and produce 10 more tons, what would be the price effect for BASF? What would be the quantity effect for BASF? Would BASF have an incentive to produce those 10 additional tons?

Prob 8 13a. Two companies dominate the industry for industrial lasers. Several people sit on the boards of directors of both companies.

Prob 8 13b. Three banks dominate the market for banking in a given state. Their profits have been going up recently as they add new fees for customer transactions. Advertising among the banks is fierce, and new branches are springing up in many locations.

Prob 8 13c. The two oil companies that produce most of the petroleum for the western half of the United States have decided to forgo building their own pipelines and to share a common pipeline, the only means of transporting petroleum products to that market.

Prob 8 13d. The two major companies that dominate the market for herbal supplements have each created a subsidiary that sells the same product as the parent company in large quantities but with a generic name.

Prob 8 13e. The two largest credit card companies, Passport and OmniCard, have required all retailers who accept their cards to agree to limit their use of rival credit cards.

Prob 8 14a. A local band that plays for weddings, parties, and so on

Prob 8 14b. Minute Maid, a producer of individual-serving juice boxes

Prob 8 14c. Your local dry cleaner

Prob 8 14d. A farmer who produces soybeans

Prob 8 16a. Assume that the market for electricity distribution was and remains a natural monopoly. Use a graph to illustrate the market for electricity distribution if the government sets price equal to average total cost.

Prob 8 16b. Assume that deregulation of electricity generation creates a perfectly competitive market. Also assume that electricity generation does not exhibit the characteristics of a natural monopoly. Use a graph to illustrate the cost curves in the long-run equilibrium for an individual firm in this industry.

Prob 8 17a. Suppose the Sopranos and the Contraltos form a cartel. For each of the quantities given in the table, calculate the total revenue for their cartel and the marginal revenue for each additional gallon. How many gallons of olive oil would the cartel sell in total and at what price? The two families share the market equally (each produces half of the total output of the cartel). How much profit does each family make?

Prob 8 17b. Uncle Junior, the head of the Soprano family, breaks the agreement and sells 500 more gallons of olive oil than under the cartel agreement. Assuming the Contraltos maintain the agreement, how does this affect the price for olive oil and the profit earned by each family?

Prob 8 17c. Anthony Contralto, the head of the Contralto family, decides to punish Uncle Junior by increasing his sales by 500 gallons as well. How much profit does each family earn now?