The graph below summarizes the demand and costs for a firm that operates in a monopolistically competitive market.Instruction: Use the nearest whole numbers on the graph when calculating numerical responses below.
a. What is the firm’s optimal output?
b. What is the firm’s optimal price?
c. What are the firm’s maximum profits?
d. What adjustments should the manager be anticipating?
Problem 08-02 (Algo)
A firm sells its product in a perfectly competitive market where other firms charge a price of $90 per unit. The firm’s total costs are C(Q) = 50 + 10Q+ 2Q2.a. How much output should the firm produce in the short run?
b. What price should the firm charge in the short run?
c. What are the firm’s short-run profits?
d. What adjustments should be anticipated in the long run?
Problem 08-13 (Essay, Autogradable)
When the first Pizza Hut opened its doors back in 1958, it offered consumers one style of pizza: its Original Thin Crust Pizza. Since its modest beginnings, Pizza Hut has established itself as the leader of the $25 billion pizza industry. Today, Pizza Hut offers six styles of pizza, including Pan Pizza, Stuffed Crust Pizza, and its Hand-Tossed Style.Pizza Hut's strategy of rolling out new pizza offerings over time is consistent with the company competing in what type of market?
What is the long-run profitability of this strategy?
The manager of a local monopoly estimates that the elasticity of demand for its product is constant and equal to –3. The firm’s marginal cost is constant at $20 per unit.a. Express the firm’s marginal revenue as a function of its price.
b. Determine the profit-maximizing price
Problem 08-14 (Algo)
You are the manager of a small pharmaceutical company that received a patent on a new drug three years ago. Despite strong sales ($125 million last year) and a low marginal cost of producing the product ($0.40 per pill), your company has yet to show a profit from selling the drug. This is, in part, due to the fact that the company spent $2 billion developing the drug and obtaining FDA approval. An economist has estimated that, at the current price of $1.20 per pill, the own price elasticity of demand for the drug is -1.5.Based on this information, what can you do to boost profits?