1. In Key West Florida, one of the hottest monopoly bars to be seen at is Captain Tony's Saloon 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. 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 one night. Suppose that each member of the Wild Bunch has a demand function for drinks x = 12-2P (P is the per unit price of a drink) for that night. On a graph, illustrate the Wild Bunch's demand curve; Captain Tony's marginal revenue curve; and Captain Tony's marginal cost curve. 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 and dead-weight loss. 2.
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This note was uploaded on 10/29/2009 for the course ECON 3130 taught by Professor Masson during the Fall '06 term at Cornell.