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ECO 550 Week 6 Chapter 11 and Chapter 12 Problems

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Chapter 11

2. Ajax Cleaning Products is a medium-sized firm operating in an industry dominated by one large firm Tile King. Ajax produces a multi-headed tunnel wall scrubber that is similar to a model produced by Tile King. Ajax decides to charge the same price as Tile King to avoid the possibility of a price war. The price charged by Tile King is $20,000.

Ajax has the following short-run cost curve:

,000 - 5,000Q + 100Q2.

A. Computer the marginal cost curve for Ajax.

B. Given Ajax’s pricing strategy, what is the marginal revenue function for Ajax?

4. Unique Creations holds a monopoly position in the production and sale of manometers. The cost function facing Unique is estimated to be

TC = $100,000 + 20Q

A. What is the marginal cost for Unique?

C. What is the marginal revenue at the price computed in Part (b)?

6. Wyandotte Chemical Company sells various chemicals to the automobile industry. Wyandotte currently sells 30,000 gallons of polyol per year at an average price of $15 per gallon. Fixed costs of manufacturing polyol are $90,000 per year and total variable costs equal $180,000. The operations research department has estimated that a 15 percent increase in output would not affect fixed costs but would reduce average variable costs by 60 cents per gallon. The marketing department has estimated the arc elasticity of demand for polyol to be –2.0.

A. How much would Wyandotte have to reduce the price of polyol to achieve a 15 percent increase in the quantity sold?

B. Evaluate the impact of such price cut on (i) total revenue, (ii) total costs, and (iii) total profits.

Chapter 12

1. Assume that two companies (C and D) are duopolists that produce identical products. Demand for the products is given by the following linear demand function:

– Qc- Qd

Where...

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