Mankiw Chapter 15 - 3536 Words

Chapter 15 – Mankiw SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. A market might have a monopoly because: (1) a key resource is owned by a single firm; (2) the government gives a single firm the exclusive right to produce some good; or (3) the costs of production make a single producer more efficient than a large number of producers. Examples of monopolies include: (1) the water producer in a small town, who owns a key resource, the one well in town; (2) a pharmaceutical company that is given a patent on a new drug by the government; and (3) a bridge, which is a natural monopoly because (if the bridge is uncongested) having just one bridge is efficient. Many other examples are possible. 2. A monopolist chooses the amount of output to†¦show more content†¦The fact that it sells a greater quantity increases the firm’s revenue, but the decline in price decreases the firm’s revenue. The overall effect depends on the price elasticity of demand. If demand is inelastic, marginal revenue will be negative. 4. Figure 1 shows the demand, marginal-revenue, average-total-cost, and marginal-cost curves for a monopolist. The intersection of the marginal-revenue and marginal-cost curves determines the profit-maximizing level of output, Qm. The profit-maximizing price, Pm can be found using the demand curve. Profit is shown as the rectangular area with a height of (PM – ATCM) and a base of QM. Figure 1 5. The level of output that maximizes total surplus in Figure 1 is where the demand curve intersects the marginal-cost curve, Qc. The deadweight loss from monopoly is the triangular area between Qc and Qm that is above the marginal-cost curve and below the demand curve. Chapter 15/Monopoly 281 It represents deadweight loss, because society loses total surplus because of the monopoly. The deadweight loss is equal to the value of the good (measured by the height of the demand curve) less the cost of production (given by the height of the marginal-cost curve), for the quantities between Qm and Qc. 6. One example of price discrimination is in publishing books. Publishers charge a muchShow MoreRelatedEssay on The Buffett Rule and Tax Reform949 Words   |  4 Pagesheritage.org/2011/12/04/chart-of-the-week-runaway-spending-not-low-tax-revenue-fueling-deficits/ Buffett, Warren. â€Å"Stop Coddling the Super-Rich,† The New York Times, 08-14-2011. Accessed 04-20- 2012. 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[pic] Source: Solow model, an increase in population growth rate Mankiw, Romer and Weil (1992), empirical study of Solow model provides an empirical evidence of Solow model; it concludes that, income lowers when population growth is high because available capital will distribute thinly to the population. One childRead Moreprinciples of microeconomics practice exam#3 with answer keys2540 Words   |  11 Pages$200. c. $500. b. $300. d. $700. ____ 14. Producer surplus directly measures a. the well-being of society as a whole. b. the well-being of buyers and sellers. c. the well-being of sellers. d. sellers’ willingness to sell. ____ 15. Suppose the demand for peaches decreases. What will happen to producer surplus in the market for peaches? a. It increases. b. It decreases. c. It remains unchanged. d. It may increase, decrease, or remain unchanged. ____ 16. Which of the