Economics 101

Fall 2001

Answers for Practice Problems #7

1. (c)

2. (c)

3. (a)

4. (a)

5. (b)

6. (b)

7. (a) The profit-maximizing condition is MR=MC.

50-2Q=10 and thus Q = 20 (units).

(b) From the demand curve, P = 50-Q = 50-20 = $30.

(c) The monopolist’s profit is that TR-TC = (30*20)-(10*20) = $400.

(d) By equating the MR and the MC, the profit-maximizing output level is 20 units.

(e) From the demand curve, P = 50-Q = 50-20 = $30.

(f) The monopolist’s profit is that

TR-TC = (30*20)-200 = $400.

8. (a) By equating the MR and the MC, 10-(Q_B/250) = 5.

Thus, the profit-maximizing output level is 1250 gallons.

(b) Similarly, 95-2Q_S = 5. Thus, the profit-maximizing output level is 45 gallons.

(c) No.

(d) The profit-maximizing prices in each market are P_B = 10-(1250/500) = $7.50 and P_S = 95-45 = $50. Thus, Apex should sell its paint to the bathroom painters at a price of $7.50 per gallon and at a price of $50 per gallon to the model boat builders.