Exam 11: Pricing Strategies for Firms With Market Power

Suppose you compete in a Cournot oligopoly market consisting of four firms. The equilibrium market price and quantity are $8 and 20 units, respectively. The marginal cost for each firm is $4. Based on this information, we know the price elasticity of the market demand is:

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. Suppose fixed costs rise to $400. What happens in the market?

Consider a Cournot oligopoly consisting of five identical firms producing good X. If the firms produce good X at a marginal cost of $7 per unit and the market elasticity of demand is -3, determine the profit-maximizing price.

A monopoly produces widgets at a marginal cost of $20 per unit and zero fixed costs. It faces an inverse demand function given by P = 100 - 4Q. What are the profits of the monopoly in equilibrium?

In a Cournot oligopoly with N firms and identical marginal costs, the relationship between the price elasticity of market demand and that of the firm is:

You are the manager of We Trust, the only bank in a small town. Your boss has been studying a report on transaction volume and has noticed a troubling trend: We Trust does not have enough tellers to handle the bank's maximum capacity, which occurs during the lunch hour. Your boss has asked for a short report that summarizes alternative plans for solving this problem, the pros and cons of each plan, and your recommended course of action. Provide this report.

A local video store estimates its average customer's demand per year is Q = 7 - 2P, and it knows the marginal cost of each rental is $0.5. What is the annual profit that the video store expects to make on an average customer if it engages in optimal two-part pricing?

Which of the following strategies will most likely NOT enhance profits in a Bertrand oligopoly?

Which group of policies aims at discouraging rivals from starting a price war?

A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. Which of the following is the marginal revenue function for the firm?

An auto dealer in Chicago recently told his mother that he makes no money on the sales of his cars but the markup on accessories is 200 percent. Can this possibly be a profit-maximizing strategy? Explain.

Revenues when a firm engages in peak-load pricing based on the figure below will be:

Which of the following statements is true regarding profit-maximizing markup for a Cournot oligopoly with N identical firms?

A campus auditorium sells tickets at half price to students during the last 30 minutes before a concert starts. This is an example of:

If a monopolist claims his profit-maximizing markup factor is 3, what is the corresponding price elasticity of demand?

Suppose that the inverse demand for a downstream firm is P = 150 - Q. Its upstream division produces a critical input with costs of C_U(Q_d) = 5(Q_d)². The downstream firm's cost is C_d(Q) = 10Q. When there is no external market for the downstream firm's critical input, the net marginal revenue for the downstream firm is:

To circumvent the problem of double marginalization:

Suppose you are an analyst for the Coca-Cola Company. An individual's inverse demand for Coca-Cola is estimated to be P = 98 - 4Q (in cents). If Coca-Cola is produced according to the cost function C(Q) = 1,000 + 2Q (in cents), compute the surplus consumers receive when Coca-Cola charges the optimal block price.

You are a truck farmer and bring produce to a farmer's market every Wednesday. You have found that on a typical day, five other farmers bring their produce to market. Years of experience have taught you that you make the most money by pricing your produce at 1.15 times your marginal cost. What is your elasticity of demand in this Cournot oligopoly? What is the market elasticity of demand?

Which of the following pricing strategies is NOT used in markets characterized by intense price competition?