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deadweight loss

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1. This graph illustrates the demand for computers in a small country. To develop a domestic computer industry, the government prohibits imports of computers and gives a single local firm the right to produce and sell computers. The demand curve shows the local demand for computers. The cost curves show the marginal cost (MC) and average total cost (ATC) of the single producer. The graph also shows the marginal revenue curve faced by this firm. How many computers will the monopolist sell to maximize profits? (1,250, 0, 600, 690 or 400)

2. This graph illustrates the demand for computers in a small country. To develop a domestic computer industry, the government prohibits imports of computers and gives a single local firm the right to produce and sell computers. The demand curve shows the local demand for computers. The cost curves show the marginal cost (MC) and average total cost (ATC) of the single producer. The graph also shows the marginal revenue curve faced by this firm. At what price will the monopolist sell each computer? (1,000, 1,300, 2,000, or 2,500)

3. This graph illustrates the demand for computers in a small country. To develop a domestic computer industry, the government prohibits imports of computers and gives a single local firm the right to produce and sell computers. The demand curve shows the local demand for computers. The cost curves show the marginal cost (MC) and average total cost (ATC) of the single producer. The graph also shows the marginal revenue curve faced by this firm. How much profit does the monopolist earn? (100,000, 150,000, 200,000 or 300,000)

4. The table below shows data for Louie's firm, which is a single-price monopolist in the fire truck market. The cost of producing an additional fire truck is constant at $20,000.

Price Number of fire trucks demanded

$80,000 0
$60,000 200
$40,000 400
$20,000 600
$0 800

Use the blue points to plot the market demand curve for fire trucks. Be sure to plot from left to right. Initially, Louie produced 300 fire trucks. Suppose that Louie has decided to increase production from 300 to 400 fire trucks. To sell the additional fire trucks, Louie needs to lower his price. This action leads to both gains in revenue and loses in revenue for Louie. The loss in revenue equals the difference between the new, lower price and the old, higher price times the number of fire trucks sold before price was lowered. Use the purple rectangle to shade the area of revenue lost. The gain in revenue equals the new, lower price times the number of additional trucks sold. Use the green rectangle to shade the area of revenue gained. (How would I graph this)

5. Great Reception, Inc., is a single-price monopolist in the market for cell phones. Assume that there is no fixed cost, and both marginal cost and average total cost are constant. When profit maximizing, Great Reception will produce ______ cell phones and charge ____ each. (350; $26, 350; $12, 700; $12, or 200; $32)

Quantity = 110 Price =36 MR=32 Revenue=3,600. MC = 12 TC=1,200.

a. What is GreatReception's profit when producing at the profit-maximizing output ? ($9800, $9100, $4200, or $4900)
a. What is the total consumer surplus when GreatReception operates as a monopolist? ($9800, $7350, $6900, or $2450)
c. How much deadweight loss does GreatReception cause when it restricts output and charges a price above marginal cost? ( $6900, $9800, $7350 or $2450)
d. Assume that GreatReception, Inc., can charge any number of prices to various consumers. If GreatReception perfectly price discriminates, what is its total profit? ($1225, $9800, $4900, or $2450)

6. True or False: If a monopolist's average total cost curve is above the market demand curve for all levels of output, the monopolist will still make a profit.
a. Wanda's Widgets is a single-price monopolist (a monopolist that does not price discriminate). Assume that Wanda's marginal cost is constant at $40, and that she faces the marginal cost, marginal revenue, and demand shown in the graph below. She has no fixed cost.
b. As a single-price monopolist, Wanda maximizes her profits by producing _____ widgets at a price of ____ each. (four; $40, three; $70, seven; #30 or five; $50)
c. This industry will produce a total of _____ widgets at the perfectly competitive price of ____ each. (four; $30, five; $50, six; $40, or four; $60)
d. Consider the welfare effects when Wanda monopolizes the market. Based on the previous questions, what is the deadweight loss caused by Wanda's monopoly? ($245, $65, $45, $200 or $80)
d. In the previous question, you found the deadweight loss (DWL) caused by Wanda's monopoly. But the true cost of monopoly to society is often different from this value. Which of the following would cause the true cost of Wanda's monopoly to be higher than the DWL value you found in the previous question? (There are substantial economies of scale in the production of widgets, so Wanda's Widgets can produce widgets at a lower cost than a competitive firm could, Wanda's Widgets changes its pricing methods and becomes a perfectly discriminating monopolist or In order to maintain her monopoly status in the U.S. widget market, Wanda's Widgets hires lobbyists to ensure that widget imports are banned.)

8. When a video game for a game console is first released in the market, its price is relatively high. After a few months on the market, the manufacturer issues discount coupons for the video game. True or False: This is an example of price discrimination.

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This job finds deadweight loss.

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