A monopolistically competitive firm prices its product using the markup pricing formula P = 1.25MC, where MC is the marginal cost of producing an additional unit. Suppose the demand for the firm's product is given by Q = 2000 - 0.1P, so the revenue from selling Q units of the product is PQ = 2000P - 0.1P2.(a)If the marginal cost of producing each unit of the product is $10,000, calculate the price of the product, the quantity produced, and the firm's revenues, costs, and profits.(b)Now suppose the marginal cost rises to $11,000. The firm can keep the price of the product unchanged, or it can change the product's price at a total cost of $700,000. Calculate the price, quantity, revenues, costs, and profits as in part (a) both for changing the price and leaving the price
unchanged. Should the firm change the price of its product?
What will be an ideal response?
| (a) | P = $12,500, Q = 750, revenues = $9.375 million, costs = $7.5 million, profit = $1.875 million. |
| (b) | If price is unchanged, quantity and revenues remain the same, while costs rise to $8.25 million |
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The long-run average cost curve connects the lower part of the short-run cost curves because:
A) prices of inputs are less when acquired for a longer time period. B) in the long run, firms have more flexibility to change input combinations. C) specialization of inputs increases productivity only in the long run. D) the firms earn positive profits in the long run.
Which of the following is considered by experts to have relatively little power within the Federal Reserve?
A) The Board of Governors B) The president of the New York Federal Reserve Bank C) The economic staff of the Board of Governors D) The Federal Advisory Council
If price elasticity is less than one, then demand is said to be inelastic
Indicate whether the statement is true or false
The arrangements that individuals have with each other to exchange goods is known as
A) demand. B) supply. C) a market. D) complements.