ECON 213 Problem Set ch. 10 Liberty University Solution

1Question

If you’re like most college students, you are always worried about having enough money. Suppose that you decide to become an Uber driver and offer rides to students on weekends. For a fee, you will drive them to parties and pick them up at the end of the night. The table below depicts the demand schedule for rides. To keep things simple, assume that you are the only person providing this service; that is, you’re a monopolist. Let’s see how much money you can make.

Although you have no fixed costs, you do incur a marginal cost of $15 per ride. How much do you charge per ride to maximize profits?

How much profit do you earn?

02Question

Below are eight descriptions of firms operating under various market conditions. For each item, determine whether the market is a monopoly or a market with perfect competition.

03Question

Suppose that the owner of a smartphone monopoly hires you to determine whether his firm has made the profit-maximizing number of smartphones. He provides you with the following production and sales information for the first six months of 2016.

In which months should the firm have produced fewer smartphones?

In which months should the firm have produced more smartphones?

In which months was the firm maximizing profits?

04Question

A monopolist has the following fixed and variable costs:

Complete the table. The profit-maximizing monopolist produces a quantity of

05Question

The figure below depicts an unlabeled market diagram that includes both the monopoly and perfectly competitive solutions. Label the diagram with the items to the right of the diagram. Make sure you scroll down to see all the items that need labeling.

06Question

Use the figure below to answer the questions that follow.

(a) Which area represents consumer surplus under perfect competition?

(b) Which area represents producer surplus under perfect competition?

(a) Which area represents consumer surplus under monopoly?

(b) Which area represents producer surplus under monopoly?

Which area represents the deadweight loss associated with a monopoly?

07Question

Suppose that after graduating from college with an economics degree, you get a job with your state’s public utilities commission. Your job is to determine the regulated price for an electric utility (a natural monopoly). The figure below shows the current situation in the market.

If the electric utility was unregulated, it would earn

If you set a regulated price to achieve economic efficiency, the electric utility would earn

If the electric utility is forced to charge a price that leads to economic losses, it would go out of business, and consumers would have no electricity. To avoid this, the government has several possible solutions at its disposal. Which of the following is NOT a possible solution?

08Question

The local community bus service, which is a monopoly, charges $2.00 for a one-way fare. The city council is thinking of raising the fare to $2.50 but expects it to generate less than 25% more revenue. The council has asked for your advice as a student of economics. The council predicts that raising the price by 25% will raise revenues by less than 25%. Which of the following is true?

Therefore, the council has