Microsofts Word Has a Virtual Monopoly in Word Processing Discussion Questions

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  1. Please submit your answer that is matched after reading each definition of the word/concept1. The curve that shows all input combinations that yeild the same quantity of output2. The line that shows all input combinations that yield the same cost, similar to the budget constrant in the consumer's choice3. It refers to the change in output when all inputs are increased in the same proportion4. A component of the production function, which refers to the improvement in technology that changes the firm's production function5. One of the cost, which is the value of what a producer gives up by using an input6. One of the cost, that is independent of the quantity of the firm's output, cannot be recovered once spent, so that doesn't affect decision making7. Cost of firm's fixed input, independent of the quantity of output8. Cost of inputs that vary with the quantity of output

 

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EC308 Intermediate Microeconomics: Summer 2022 Homework 6 If you need to show a process please show your own work for these problems. Market Power and Monopoly 1. Identify and explain the sources of market power for each case listed below: a. In the early 1990s, the DeBeers diamond cartel controlled almost all of the world’s rough diamond production. b. Microsoft’s Word has a virtual monopoly in word processing, even though many claim that better word-processing programs exist. c. Union Pacific dominates the rail shipping market in the north central United States. d. In Louisiana, people must pass a licensing test before they can arrange flowers. e. There’s a Starbucks on practically every busy corner, in every bookstore, and in every airport; customers willing to walk can find better coffee selling for less. 2. Consider the graph below, which illustrates the demand for Fluff. Fluff can be produced at a constant marginal and average total cost of $4 per case. a. What is the inverse demand function? what is the marginal revenue curve (function)? b. Apply the 𝑀𝑀𝑀𝑀 = 𝑀𝑀𝑀𝑀 rule to determine the profit-maximizing level of output.; What price must the monopolist charge to maximize profit? c. Calculate the profit earned by the monopolist 3. Find marginal revenue for the firms that face the following demand curve a. 𝑄𝑄 = 1,000 βˆ’ 5𝑃𝑃 b. 𝑄𝑄 = 100π‘ƒπ‘ƒβˆ’2 4. Suppose a firm faces demand of 𝑄𝑄 = 300 βˆ’ 2𝑃𝑃 and has total cost function of 𝑇𝑇𝑇𝑇 = 75𝑄𝑄 + 𝑄𝑄 2 . a. What is the firm's marginal revenue? b. What is the firm's marginal cost? c. Find the firm's profit maximizing quantity where 𝑀𝑀𝑀𝑀 = 𝑀𝑀𝑀𝑀 d. Find the firm's profit-maximizing price and profit The Calculus of Profit Maximization Through the chapters that are related to the market, we saw that all firms maximize their profit regardless of their degrees of market power. max πœ‹πœ‹(𝑄𝑄) = 𝑇𝑇𝑇𝑇(𝑄𝑄) βˆ’ 𝑇𝑇𝑇𝑇(𝑄𝑄) 𝑄𝑄 which is an unconstraint optimization problem, different from cost-minimization problem. Therefore, this profit maximization problem is much simpler to solve. In addition, the profit maximization problem only has one choice variable: output (𝑄𝑄). The profit maximizing condition All firms produce the profit-maximizing level of output when marginal revenue equals marginal cost. 𝑀𝑀𝑀𝑀 = 𝑀𝑀𝑀𝑀 Marginal revenue A marginal revenue means additional revenue from additional one unit of output. Thus, we will start with total revenue. 𝑇𝑇𝑇𝑇 = 𝑃𝑃 Γ— 𝑄𝑄 Generally, price 𝑃𝑃 is not fixed, but function of the quantity the firm produces. To find marginal revenue, we take the derivative of the total revenue function with respect to 𝑄𝑄. 𝑀𝑀𝑀𝑀 = πœ•πœ•πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• Suppose a firm has the inverse demand curve 𝑃𝑃 = π‘Žπ‘Ž βˆ’ 𝑏𝑏𝑏𝑏. To derive the marginal revenue, we first determine total revenue by multiplying 𝑃𝑃 by 𝑄𝑄. 𝑇𝑇𝑇𝑇 = 𝑃𝑃 Γ— 𝑄𝑄 = (π‘Žπ‘Ž βˆ’ 𝑏𝑏𝑏𝑏)𝑄𝑄 = π‘Žπ‘Žπ‘Žπ‘Ž βˆ’ 𝑏𝑏𝑄𝑄 2 Let's take the derivative of total revenue, then 𝑀𝑀𝑀𝑀 = πœ•πœ•πœ•πœ•πœ•πœ• πœ•πœ•(π‘Žπ‘Žπ‘Žπ‘Ž βˆ’ 𝑏𝑏𝑄𝑄 2 ) = = π‘Žπ‘Ž βˆ’ 2𝑏𝑏𝑏𝑏 πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• As you see, if the inverse demand curve is linear, the marginal revenue curve has same intercept π‘Žπ‘Ž, and twice of the slope than demand curve. Short review: Marginal cost A marginal cost means additional costs that come from additional unit of output. 𝑀𝑀𝑀𝑀 = πœ•πœ•πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• When you see the profit maximization problem and profit maximizing condition again, we can figure out the relationship below. πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ•πœ•πœ• = βˆ’ = 𝑀𝑀𝑀𝑀 βˆ’ 𝑀𝑀𝑀𝑀 = 0 πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• That is, equaling marginal revenue and marginal cost means find a optimal level of output that make additional profit from additional output as zero. Examples 1. Let the firm faces a demand function of 𝑄𝑄 = 10 βˆ’ 0.4𝑃𝑃, and total cost function of 𝑇𝑇𝑇𝑇 = 2.5𝑄𝑄 2 a) Solve profit-maximizing level of output b) What price will be charged to maximize firm's profit? A) a) We need to set up this firm's profit maximization problem. Let's derive inverse demand function first. 𝑃𝑃 = 25 βˆ’ 2.5𝑄𝑄 Since πœ‹πœ‹ = 𝑇𝑇𝑇𝑇 βˆ’ 𝑇𝑇𝑇𝑇 = 𝑃𝑃𝑃𝑃 βˆ’ 𝑇𝑇𝑇𝑇, the profit of firm is- πœ‹πœ‹ = (25 βˆ’ 2.5𝑄𝑄) Γ— 𝑄𝑄 βˆ’ 2.5𝑄𝑄 2 = 25𝑄𝑄 βˆ’ 2.5𝑄𝑄 2 βˆ’ 2.5𝑄𝑄 2 = 25𝑄𝑄 βˆ’ 5𝑄𝑄 2 So, the firm's profit maximization problem is max πœ‹πœ‹ = 25𝑄𝑄 βˆ’ 5𝑄𝑄 2 𝑄𝑄 Let's find a first-order condition, that is taking derivative of profit with respect to 𝑄𝑄. πœ•πœ•πœ•πœ• πœ•πœ•(25𝑄𝑄 βˆ’ 5𝑄𝑄 2 ) = =0 πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• 25 βˆ’ 10𝑄𝑄 = 0 10𝑄𝑄 = 25 𝑄𝑄 = 2.5 b) To find market price, we need to plug 𝑄𝑄 βˆ— into the inverse demand function 𝑃𝑃 = 25 βˆ’ 2.5𝑄𝑄 βˆ— = 25 βˆ’ 2.5 Γ— 2.5 = 18.75 2. Suppose firm has total cost 𝑇𝑇𝑇𝑇 = 0.5𝑄𝑄 2 . They are in the perfectly competitive market, thus they are facing market price 𝑃𝑃 = 15 a) Solve profit-maximizing level of output A) a) We already know 𝑃𝑃, so we can start with defining the profit of this firm πœ‹πœ‹ = 𝑇𝑇𝑇𝑇 βˆ’ 𝑇𝑇𝑇𝑇 = 𝑃𝑃𝑃𝑃 βˆ’ 𝑇𝑇𝑇𝑇 πœ‹πœ‹ = 15 Γ— 𝑄𝑄 βˆ’ 0.5𝑄𝑄 2 So, the firm's profit maximization problem is max πœ‹πœ‹ = 15𝑄𝑄 βˆ’ 0.5𝑄𝑄 2 𝑄𝑄 The remaining process is same. Derive first-order condition by taking partial derivative of profit with respect to 𝑄𝑄. πœ•πœ•πœ•πœ• πœ•πœ•(15𝑄𝑄 βˆ’ 0.5𝑄𝑄 2 ) = =0 πœ•πœ•πœ•πœ• πœ•πœ•πœ•πœ• 15 βˆ’ 𝑄𝑄 = 0 𝑄𝑄 βˆ— = 15
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Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.Hi, I finished the quiz. Will be uploading the homework soon.

1. The curve that shows all input combinations that yield the same quantity of output.
ISOQUANT CURVE(CH. 6)
2. The line that shows all input combinations that yield the same cost, similar to the budget
constraint in the consumer's choice. ISOCOST LINE (CH. 6)
3. It refers to the change in output when all inputs are increased in the same proportion.
RETURNS TO SCALE (CH. 6)
4. A component of the production function, which refers to the improvement in technology
that changes the firm's production function. TOTAL FACTOR PRODUCTIVITY
GROWTH (CH. 6)
5. One of the cost, which is the value of what a producer gives up by using an input.
OPPORTUNITY COST (CH. 7)
6. One of the cost, that is independent of the quantity of the firm's output, cannot be
recovered once spent, so that doesn't affect decision making. SUNK COSTS (CH. 7)
7. Cost of firm's fixed input, independent of the quantity of output. FIXED COSTS (CH. 7)
8. Cost of inputs that vary with the quantity of output. VARIABLE COSTS (CH. 7)

View attached explanation and answer. Let me know if you have any questions.Finihsed. Please check my work and contact me if you have any doubts.

Q1. Identify and explain the sources of market power for each case listed below:
a) In the early 1990s, the DeBeers diamond cartel controlled almost all of the world’s
rough diamond produc...


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