103assn4summer09 - Jimmy to stop selling peeps Jimmy finds...

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Principles of Microeconomics Neil Roberts ECON 103 Summer 2009 Assignment #4 (20 marks) Due: Monday, July 20, 2009 1. Jimmy has a room that overlooks (from a distance) a major league baseball stadium. He decides to rent a telescope for $50 a week and charge his friends and classmates for a 30 second “peep” at the game. He can act as a single price monopolist for renting out “peeps”; for each person who uses takes a peep, it costs him $0.20 to clean the eyepiece. The following table illustrates the information that Jimmy has gathered about demand for this service. Price of Peep 1.2 0 1.0 0 0.9 0 0.8 0 0.7 0 0.6 0 0.5 0 0.4 0 0.3 0 0.2 0 0.10 Quantity Demanded 0 100 150 200 250 300 350 400 450 500 550 a. For each price in the table above, calculate the total revenue from selling peeps and the marginal revenue per peep. (4 marks) b. At what quantity will Jimmy’s profit be maximized? What price will he charge? What will be his total profit? (4 marks) c. Jimmy’s landlady complains about all the visitors coming into the building and tells
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Unformatted text preview: Jimmy to stop selling peeps; Jimmy finds out, though, that if he gives her $0.20 per peep she’ll stop complaining. What effect does this bribe have on Jimmy’s marginal cost per peep? What is the new profit-maximizing quantity of peeps? What impact does this bribe have on Jimmy’s total profit? (4 marks) 2. “In the long run, there is no difference between monopolistic competition and perfect competition.” True, false, or uncertain? Discuss this statement with respect to the following: (8 marks – 2 marks each) a. The price charged to consumers b. The average total cost of production c. The efficiency of the market outcome d. The typical firm’s profit in the long run Notes: Show all of your calculations and explain your steps. You can think about the assignment in a group, but you have to convince me that you wrote the answer alone; copied assignments will receive zero....
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