ECON 111: INTRODUCTORY MICROECONOMICS Tutorial # 5 (Week commencing 2 April) Quiz 1 (a) Draw a demand curve facing a perfect

competitor and its corresponding marginal revenue curve. (b) Draw a demand curve facing a monopolist and its corresponding marginal revenue curve. (c) Which of the following demand curves identifies a firm with market power? p = 50 p = 100 5q, where p is the market price. Represent graphically each demand curve and justify your answer. (d) Compute the most profitable output level for a monopoly firm facing a marginal revenue curve described by the equation MR = 500 2q and producing with a constant marginal cost of $100 per unit of output. Can you calculate the total revenue and the total cost when this monopoly firm is maximizing profits? Explain briefly. Quiz 2 (a) What rules determine the most profitable output level of a monopolist? (b) Does a profit-maximizing monopolist operate on the inelastic portion of its demand curve? Explain why it does or it does not. Quiz 3 The fact that a monopoly firm produces the most profitable output level tells nothing about how large these profits will be or even whether there will be any profits at all. Illustrate this by showing three alternative demand curves facing the monopolist: (a) One where the monopolist can earn abnormal profits; (b) One where it can just cover its implicit costs; and (c) One where it makes subnormal profits. In all cases use a U-shaped ATC curve. (irrespective of the output level q)

Quiz 4 The marginal revenue (MR) and marginal cost (MC) curves are described, respectively, by the equations: MR = 7 0.3q and MC = 0.12q2 1.8q + 10 (a) Fill in columns (2) and (3) of Table 1 using these equations.

Quantity (1) 1.80 2.00 2.50 8.90 9.90 10.00 10.05

Marginal Revenue (2)

Marginal Cost (3)

Table 1 (b) The most profitable output level satisfies the condition MR = MC. Which, if any, is the most profitable output level? Justify your answer. (c) Is the firm in question a price taker? Why or why not? Quiz 5 (a) If MR = MC, but MC cuts MR from above, what would the monopolist do to increase profits? (b) We know that a monopolist is maximizing profits when the elasticity of demand is n = 2 and MC is $10. What is the most profitable price charged by this monopolist? Quiz 6 A monopolist runs a tree-cutting service. Its total cost function is TC = 2q2 + 4q + 200, where TC is the total cost in dollars per day and q is the number of trees cut per day. The corresponding ATC, AVC, and MC are given by Table 2 in Tutorial # 9, Quiz 3. The demand curve facing the monopolist is p = 72 2.25q (p is measured in $/day), and the corresponding marginal revenue curve is MR = 72 4.5q (MR is measured in $/day) (a) Compute the maximum value of the total profit function = TR TC . (b) Draw on the same diagram the following curves: ATC, MC, the demand facing the monopolist, and MR. (c) Identify the profit rectangle.