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ps7 301 f06_ProblemSet

# ps7 301 f06_ProblemSet - Economics 301 PROBLEM SET 7 Due...

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Economics 301 PROBLEM SET 7 – Due Wednesday Nov 29 in class Wissink 1. In Key West Florida, one of the hottest bars to be seen at is Captain Tony's Saloon (run by the infamous Captain Tony) which is open every day from 7 P.M. to 2 A.M. Tony's total cost function for making and serving drinks is tc = \$2*X, where X is the number of drinks. Note this implies his marginal costs are constant and equal to \$2.00. A slew of economists are in town living it up at the Red Roof Inn. Suppose that a group of them, affectionately known as the "Wild Bunch" and numbering 100, has persuaded Captain Tony to open his saloon exclusively for them from 5 P.M. to 7 P.M. Suppose that each member of the Wild Bunch has a demand function for drinks x=12-2P (P is the price of a drink). Assume all the economists look and act alike so Tony can not practice price discrimination. a) On a graph, illustrate the Wild Bunch's demand curve; Captain Tony's marginal revenue curve; and Captain Tony's marginal cost curve. b) What is the profit maximizing number of drinks and price charged per drink to these rowdy economists? How much profit does Tony make? Calculate consumers’ and producer’s surplus. 2. You are asked to analyze the shrimp fishing industry off the coast of New Orleans. Here are the facts. Initially, shrimp fishing is a purely competitive industry. Each shrimp firm, that is, the owner of a shrimp boat, owns only a single boat and there is only one size boat that can be used. A boat can make only one fishing trip per day and a trip will always yield a catch of exactly 1 ton of shrimp. A fishing trip costs \$400; there are no fixed costs to consider. The table represents the industry demand curve for shrimp. a) If the industry is in long-run equilibrium, the price of shrimp will be \$_____ per ton and there are ______ firms in the industry, producing a total catch of _______ tons per day. Each firm earns a profit of \$ _________ per day. b) Now a monopolist contemplates entering the industry and buying up all the existing firms and erecting an effective barrier against the entry of new firms. There are no economies or diseconomies of scale, so the monopolist can catch as many tons of shrimp as he wants for a cost of \$400 per ton. As the sole producer of shrimp (no pun intended), the monopolist will maximize profits by catching a level of ________ tons of shrimp per day. He will employ ________

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ps7 301 f06_ProblemSet - Economics 301 PROBLEM SET 7 Due...

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