50.1K

Verified Solution

Link Copied!

Indicate whether the following statements are true or false,and then explain your answers:

a. The marginal revenue from selling another unit of eggs cannever be higher than the price of eggs.

b. Because the price a seller charges is always greater than$0, the marginal revenue from selling another unit must also begreater than $0.

17. Consider the market for Pop Rocks depicted in the diagrambelow:

a. If the Pop Rock industry were competitive, what would thecompetitive price and quantity be?

b. If the Pop Rock industry were competitive, what would theconsumer and producer surpluses be, respectively?

c. Suppose that gangland figure Tommy Vercetti monopolizes thePop Rock market. What price and quantity would he choose tomaximize profit?

d. Calculate the consumer and producer surpluses of this PopRock monopoly.

e. Compare your answers in (d) to (b). How big is thedeadweight loss of monopoly?

20. Consider a small, isolated town in which a brewery facesthe following inverse demand: P = 15 – 0.33Q. The brewery canproduce beer at a constant marginal and average total cost of $1per bottle.

a. Calculate the profit-maximizing price and quantity, as wellas producer and consumer surplus and the deadweight loss frommarket power.

b. If it were possible to organize the townsfolk, how muchwould they be willing to pay the brewery to sell beer at a priceequal to its marginal cost?

c. What is the minimum payment the brewery would be willing toaccept to sell beer at a price equal to marginal cost?

d. Is there potentially a bargain that can be struck betweenthe townsfolk and brewery? What would the deadweight loss be ifsuch a bargain were struck?