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Chapter 8 Solution.pdf

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ECON 3411
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Chapter 08Managing in Competitive Monopolistic and Monopolistically Competitive MarketsChapter 8 Answers to Questions and Problems 1a 7 units b 28 c 224 since 327224 d 98 since 14798 e 126 the difference between total cost and variable cost f It is earning a loss of 28 since 28 32 x 7 28 g126 since its loss will equal its fixed costs h Shut down2a Set PMC to get 90104Q Solve for Q to get Q20 units b 90 2c Revenues are R90201800 costs are C5010202201050 so profits are 750 d Entry will occur the market price will fall and the firm should plan to reduce its output In the longrun economic profits will shrink to zero3a 7 units b 130 c 140 since 130110 x 7140 d This firms demand will decrease over time as new firms enter the market In the longrun economic profits will shrink to zero4a MR3006Q and MC4Q Setting MRMC yields 3006Q4Q Solving yields Q30 units The profitmaximizing price is obtained by plugging this into the demand equation to get P300330210 2b Revenues are R210306300 and costs are C15002303300 so the firms profits are 3000 c Elastic d TR is maximized when MR0 Setting MR0 yields 3006Q0 Solving for Q yields Q50 units The price at this output is P300350150e Using the results from part d the firms maximum revenues are R150507500 f Unit elastic 812014 by McGrawHill Education This is proprietary material solely for authorized instructor use Not authorized for sale or distribution in any manner This document may not be copied scanned duplicated forwarded distributed or posted on a website in whole or part
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