O'Reilly logo

Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition by George Norman, Dan Richards, Lynne Pepall

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Answers to Practice Problems

Chapter 1

No Practice Problems in this chapter.

Chapter 2

2.1

  1. Profit Maximization implies MC = 2q + 10 = P. Hence, q = (P − 10)/2.
  2. With 50 firms, horizontal summation of the individual marginal cost curves yields: QS = 50 (P − 10)/2 = 25P − 250.
  3. Equilibrium: P = $30 and Q = 500.
  4. q = (P − 10)/2 = 10. Revenue = Pq = $300. Total cost = 100 + q2 + 10q = $300. Profit = 0.

2.2

  1. Inverse demand curve is: P = (6,000 − 9Q)/50. Hence, MR = 120 − (18Q/50) = 120 − (9Q/25).
  2. MC = 10 + Q/25. Equate with MR to obtain: Q = 275. At this output, P = $70.50.
  3. Total revenue = $19,387.50. Each plant produces 5.5 units and incurs a total cost of $185.25. Each plant earns a revenue of $387.75. Profit at each plant is $202.50.

2.3

  1. Consumer surplus is the area of the triangle above the equilibrium price but below the demand curve = (1/2)($120 − $30)500 = $22,500. Producer surplus is the area of the triangle below the equilibrium price but above the supply curve = (1/2)($30 − $10)500 = $5,000. Total Surplus = $22,500 + $5,000 = $27,500. Note: Surplus is a marginal concept. Producer fixed cost is not considered.
  2. Total surplus falls by area of deadweight triangle. Height of triangle is given by reduction in output which is 500 − 275 = 225. Marginal cost at Q = 275 is $21. Base of triangle is given by price less marginal = $70.50 − $21 = $59.50. So deadweight triangle has area equal to: = (1/2)($49.50)225 or $5,568.75. The new total surplus is the competitive surplus less the ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required