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The Athletic Medicine Center in Madison, Wisconsin, enjoys pricing power in the practice of medicine. Market demand and marginal revenue relations for a standard medical procedure to repair damaged knee cartilage are:

P = $5,000 - $0.05Q

MR = ∆TR/∆Q = $5,000 - $0.1Q

Fixed costs are nil, and average variable costs are constant at $4,000 per unit.

A. Calculate the profit-maximizing price/output combination and economic profits if the Athletic Medicine Center enjoys an effective monopoly.

B. Calculate the price/output combination and total economic profits that would result if new entrants create a perfectly competitive market. 

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Mahe Alam
Mahe AlamLv10
28 Sep 2019

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Related questions

During recent years, Microchips Corp. has enjoyed substantial economic profits derived from patents covering a wide range of inventions and innovations for microprocessors used in high-performance desktop computers. A recent introduction, the Penultimate, has proven especially profitable. Market demand and marginal revenue relations for the product are as follows:

P = $5,500 - $0.005 Q

MR = ∆TR/∆Q = $5,500 - $0.01Q

Fixed costs are nil because research and development expenses have been fully amortized during previous periods. Average variable costs are constant at $4,500 per unit.

A. Calculate the profit-maximizing price-output combination and economic profits if MicroChips enjoys an effective monopoly because of patent protection.

B. Calculate the price-output combination and total economic profits that would result if competitors offer clones that make the market perfectly competitive.

(Please show the steps)

1.
A monopolist faces the following demand curve:


Price Quantity Demanded

$51 1

$47 2

$42 3

$36 4

$29 5

$21 6

$12 7



The monopolist has total fixed costs of $60 and has a constantmarginal cost of $15. What is the profit-maximizing level ofproduction?





A) 5 units
B) 3 units
C) 2 units
D) 4 units
2.
A monopolist faces the following demand curve:


Price Quantity Demanded

$10 5

$9 10

$8 16

$7 23

$6 31

$5 49

$4 52

$3 60



The monopolist has total fixed costs of $40 and a constant marginalcost of $5. At the profit-maximizing level of output, themonopolist’s average total cost is



A) $6.74
B) $9.00
C) $7.50
D) $5.82
3.
A monopoly market


A) generally fails to maximize total economic well-being.
B) generally fails to maximize producer surplus.
C) always maximizes total economic well-being.
D) always minimizes consumer surplus.
4.
For a monopoly, the supply curve is a portion of its
A) none of the above; a monopoly does not have a supplycurve.
B) average total cost curve.
C) marginal revenue curve.
D) marginal cost curve.
5.
A monopoly firm can sell 200 units of output for $36.00 per unit.Alternatively, it can sell 201 units of output for $35.80 per unit.The marginal revenue of the 201st unit of output is
A) $–35.80.
B) $4.20.
C) $–4.20.
D) $35.80.
6.
If a monopolist sells 100 units at $8 per unit and realizes anaverage total cost of $6 per unit, what is the monopolist'sprofit?
A) $800
B) $400
C) $600
D) $200
7.
A monopolist is a price
A) setter, and therefore has no demand curve.
B) setter, and therefore has no supply curve.
C) taker, and therefore has no supply curve.
D) setter, and therefore has no variable cost curve.
8.
To define a monopoly, we cite the following characteristics: (i)The firm is the sole seller of its product. (ii) The firm’s productdoes not have close substitutes. (iii) The firm generates a largeeconomic profit. (iv) The firm is located in a small geographicmarket.
A) (ii) and (iv)
B) All of the above are correct.
C) (i) and (ii)
D) (i) and (iii)
9.
Consider a transportation corporation named C.R. Evans that hasjust completed the development of a new subway system in amedium-sized town in the Northwest. Currently, there are plenty ofseats on the subway, and it is never crowded. Its capacity farexceeds the needs of the city. After just a few years of operation,the shareholders of C.R. Evans experienced incredible rates ofreturn on their investment, due to the profitability of thecorporation.

Which of the following statements are most likely to be true? (i)New entrants to the market know they will earn a smaller piece ofthe market than C.R. Evans currently has. (ii) C.R. Evans is mostlikely experiencing increasing average total cost. (iii) C.R. Evansis a natural monopoly.

A) (ii) and (iii)
B) All of the above are correct.
C) (i) and (iii)
D) (i) and (ii)
10.


Quantity
Price
Total Revenue
Average Revenue
Marginal Revenue
1
$35
$35


2

64
32
29
3
$29



4



17
5
$23


11
6

120


7
$17


-1
8



-7
9

99
11
-13
10

80
8





If the monopolist sells 8 units of its product, how much totalrevenue will it receive from the sale?

You wil have to complete the entries in this table to get ananswer. It is a wothwhile exercise and I encourage you to completethe table.

HINT: (a.) Total Revenue = Price x Quantity. (So for quantity of 3x price of $29 = 87 total revenue)

(b) Average Revenue is the same as Price. (So column 2 and column 4would be the same. Calculate to see if that is correct)

(c) Marginal Revenue = Change in TR divided by change in quantity.(You calculated TR = 87 for Q=3. Thus to find MR for Q = 3, findthe change in TR= 87 - 64 and divided by one).











A) 112
B) It cannot be determined from the information provided.
C) 164
D) 40
11.
What conditions need to be present for a firm to be able to use'price discrimination?'
A) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; items can beresold
B) Firm should be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
C) Firm should not be perfectly competitive; buyers should havesame elasticities;; resale of the items is not possible.
D) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
12.
If the government regulates the natural monopoly by asking it tocharge a price that is equal to its marginal cost (P=MC) theregulated monopoly will -------- so instead the government ends upletting it charge a price equal to its ------
A) have a profit; fixed cost
B) have a profit; average cost
C) have a loss; variable cost
D) have a loss; average cost

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