Explore BrainMass
Share

# Profit-maximizing price: Geographically divided markets

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

A monopolist sells in two geographically divided markets, the East and the West. Marginal cost is constant at \$50 in both markets. Demand and marginal revenue in each market are as follows:

QE = 900 - 2Pe
MRe = 450 - QE
QW = 700 - PW
MRw = 700 - 2Qw

a. Find the profit-maximizing price and quantity in each market.
b. In which market is demand more elastic?

https://brainmass.com/economics/output-and-costs/profit-maximizing-price-geographically-divided-markets-543427

#### Solution Preview

a. Find the profit-maximizing price and quantity in each market.

Marginal Cost=MC=\$50

Market : East
MRe=450-QE
Put MRe=MC
450-QE=50
QE=400

QE=900-2Pe
Put QE=400
400=900-2Pe
2Pe=500
Pe=250

Profit Maximizing price in East=\$250
Profit Maximizing ...

#### Solution Summary

Solution depicts the steps to find out the optimal price and output combinations in two different markets.

\$2.19

## Economics Questions: CPI, Productivity, GDP, Economies of Scale, Labour Force, Elasticity & Market Structure

I need help with correct responses.

1. A fundamental source of monopoly market power arises from

1. perfectly elastic demand.
2. perfectly inelastic demand.
3. barriers to entry.
4. availability of "free" natural resources, such as water or air.

2. How long does it take a firm to go from the short run to the long run?

1. six months
2. one year
3. two years
4. It depends on the nature of the firm.

3. Economists assume that the goal of the firm is to maximize

1. total revenue.
2. total profits.
3. total costs.
4. total satisfaction.

4.Cyclical unemployment refers to

1. the relation between the probability of unemployment and a worker's changing level of experience.
2. how often a worker is likely to be employed during her lifetime.
3. year-to-year fluctuations of unemployment around its natural rate.
4. long-term trends in unemployment.

5.The natural rate of unemployment is the

1. unemployment rate that would prevail with zero inflation.
2. rate associated with the highest possible level of GDP.
3. difference between the long-run and short-run unemployment rates.
4. amount of unemployment that the economy normally experiences.

6. A firm's opportunity costs of production amount to its

1. explicit costs only.
2. implicit costs only.
3. explicit costs + implicit costs.
4. explicit costs + implicit costs + total revenue.

7. Accounting profit is equal to

1. marginal revenue minus marginal cost.
2. total revenue minus the explicit cost of producing goods and services.
3. total revenue minus the opportunity cost of producing goods and services.
4. average revenue minus the average cost of producing the last unit of a good or service.

8.The real interest rate tells you

1. how fast the number of dollars in your bank account rises over time.
2. how fast the purchasing power of your bank account rises over time.
3. the number of dollars in your bank account today.

9. Economic profit is equal to

1. total revenue minus the explicit cost of producing goods and services.
2. total revenue minus the opportunity cost of producing goods and services.
3. total revenue minus the accounting cost of producing goods and services.
4. average revenue minus the average cost of producing the last unit of a good or service.

10. The term inflation is used to describe a situation in which

1. the overall level of prices in the economy is increasing.
2. incomes in the economy are increasing.
3. stock-market prices are rising.
4. the economy is growing rapidly.

11. In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to

1. shutdown if price is less than average total cost.
2. shutdown if price is greater than average total cost.
3. shutdown if average revenue is greater than average fixed cost.
4. shutdown if average revenue is greater than marginal cost.

12. For a firm in a perfectly competitive market, the price of the good is always

1. equal to marginal revenue.
2. equal to total revenue.
3. greater than average revenue.
4. equal to the firm's efficient scale of output.

13. Real GDP per person

1. minus real GDP per person from the previous period equals the growth rate of real GDP per person.
2. provides more meaningful comparisons across time and countries than real GDP.
3. provides a less useful measure of the standard of living than nominal GDP per person.
4. All of the above are correct.

14. A monopoly's marginal cost will

1. be less than its average fixed cost.
2. be less than the price per unit of its product.
3. exceed its marginal revenue.
4. equal its average total cost.

15. In setting the production level, a firm's cost curves

1. by themselves do not tell us what decisions the firm will make.
2. dictate what decisions the firm will make.
3. have no bearing on what decisions the firm will make.
4. None of the above is correct.

16. The consumer price index is used to

1. track changes in the level of wholesale prices in the economy.
2. monitor changes in the cost of living.
3. monitor changes in the level of real GDP.
4. track changes in the stock market.

17. Which of the following is a correct way to measure productivity?

1. divide the number of hours worked by output
2. divide output by the number of hours worked
3. compute output growth
4. divide the change in output by the change in number of hours worked

18. GDP is defined as

1. the market value of all goods and services produced within a country in a given period of time.
2. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time.
3. the market value of all final goods and services produced within a country in a given period of time.
4. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

19. The labor force equals the

1. number of people who are employed.
2. number of people who are unemployed.
3. number of people employed plus the number of people unemployed.

20. Economies of scale arise when

1. an economy is self-sufficient in production.
2. individuals in a society are self-sufficient.
3. fixed costs are large relative to variable costs.
4. workers are able to specialize in a particular task.

21. The catch-up effect refers to the idea that

1. saving will always catch-up with investment spending.
2. it is easier for a country to grow fast and so catch-up if it starts out relatively poor.
3. population eventually catches-up with increased output.
4. if investment spending is low, increased saving will help investment to "catch-up."

22. A profit-maximizing firm will shut down in the short run when

1. price is less than average variable cost.
2. price is less than average total cost.
3. average revenue is greater marginal cost.
4. average revenue is greater than average fixed cost.

23. A recession is a period during which

1. nominal GDP declines for about two consecutive quarters.
2. nominal GDP declines for about four consecutive quarters.
3. real GDP declines for about two consecutive quarters.
4. the GDP deflator declines for about four consecutive quarters.

24. A natural monopoly occurs when

1. the product is sold in its natural state (such as water or diamonds).
2. there are economies of scale over the relevant range of output.
3. the firm is characterized by a rising marginal cost curve.
4. production requires the use of free natural resources, such as water or air.

25. Productivity

1. is nearly the same across countries, and so provides no help explaining differences in the standard of living across countries.
2. explains very little of the differences in the standard of living across countries.
3. explains some, but not most of the differences in the standard of living across countries.
4. explains most of the differences in the standard of living across countries.

View Full Posting Details