Part 1: Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 -0.04Q, where Q is the quantity demanded (in millions of packs) and Pis the price per pack (in $). Also, you should draw in the marginal revenue curve. Refer to the scenario above. If the quantity sold is 50 million packs, then the firm's total revenue is total cost is A. B. C. D. A. B. C $400 million; $200 million D $250 million; $100 million Part 2 Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. If Tobac Co. could successfully carry out perfect price discrimination, the social surplus would and the consumer surplus would be $200 million; $50 million $300 million; $150 million not be maximized; $112.5 million be maximized; $450 million not be maximized; $0 and the be maximized; $0
Part 1: Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 -0.04Q, where Q is the quantity demanded (in millions of packs) and Pis the price per pack (in $). Also, you should draw in the marginal revenue curve. Refer to the scenario above. If the quantity sold is 50 million packs, then the firm's total revenue is total cost is A. B. C. D. A. B. C $400 million; $200 million D $250 million; $100 million Part 2 Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. If Tobac Co. could successfully carry out perfect price discrimination, the social surplus would and the consumer surplus would be $200 million; $50 million $300 million; $150 million not be maximized; $112.5 million be maximized; $450 million not be maximized; $0 and the be maximized; $0
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.5P
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Question
Transcribed Image Text:Part 1:
Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the
official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack.
The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the
(inverse) demand curve is P = 8 -0.04Q, where Q is the quantity demanded (in millions of packs) and Pis the price per
pack (in $). Also, you should draw in the marginal revenue curve.
Refer to the scenario above. If the quantity sold is 50 million packs, then the firm's total revenue is
total cost is
A.
B.
C.
D.
A.
B.
с
$400 million; $200 million
D
$250 million; $100 million
Part 2
Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official
currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. If
Tobac Co. could successfully carry out perfect price discrimination, the social surplus would
and the consumer
surplus would be
$200 million; $50 million
$300 million; $150 million
not be maximized; $112.5 million
be maximized; $450 million
not be maximized; $0
and the
be maximized; $0
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