What profit is each firm making

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Reference no: EM13798975

1. Each of 10 firms in a given industry has the costs given in the top table, below. The market demand schedule is given in the bottom table.

Quantity		Total Cost
0		12
1		24
2		27
3		31
4		39
5		53
6		73
7		99
Price	Quantity Demanded
2	110
4	100
6	90
8	80
10	70
12	60
14	50
16	40

A. What is the market equilibrium price and the price each firm gets for its product?

B. What is the equilibrium market quantity and the quantity each firm produces?

C. What profit is each firm making?

D. Below what price will firms begin to exit the market?

E. Before trying to answer the above, you should determine the market supply schedule. Start with a table marginal costs for the representative firm.

2. Large pharmaceutical firms use monopoly power granted by patents to sell drugs at prices that far exceed marginal costs. Evidence from countries without effective patent protections suggests that these drugs could sell for as little as 25 percent of their patent-protected prices. That difference costs U.S. consumers (including the government) nearly four times what pharmaceutical corporations spend on research each year.

a. How should we deal with these disturbing abuses of the patent system?

b. Should the government buy back patents as your textbook discusses, or should it not issue them in the first place?

c. Should patents be granted in some industries but not others?

d. If so, how should we encourage research in areas with no patent protection?

3. Why is the assumption of no barriers to entry important for the existence of perfect competition?

4. How can the demand curve for the market be downward-sloping but the demand curve for a competitive firm be perfectly elastic?

5. Why does a monopolist produce less output than would perfectly competitive firms in the same industry?

6. Why is it difficult for firms in an industry to maintain a cartel?

7. Is the demand curve as perceived by an oligopolist likely to be more or less elastic for a price increase or a price decrease?

8. Why would most economists be concerned about third-party-payer systems in which the consumer and the payer are different?

9. Why doesn't a manager have the same incentive to hold costs down as an owner does?

10. In what way does the threat of a corporate takeover place competitive pressures on a firm?

Reference no: EM13798975

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