1

c.
What is special about a situation where marginal revenue equals zero?
(
Hint
:
You may want
to graph the demand and marginal revenue curves).
2

3. There are five bridges and tunnels that cross from New Jersey into New York City. Raising the
toll on one of them causes total revenue collected at that location to fall. Raising tolls on all of
them causes total revenue collected at each one to increase.
Use the relationship between
marginal revenue and price elasticity to explain why this happens.
4. Anna’s Lawn Mowing Service is a small business that acts as a price taker (MR=P). The prevailing
market price of lawn mowing is $20 per acre. Although Anna can use the family mower for free,
she has other costs given by Total cost = 0.1q
2
+ 10q + 50,
where q = the number of acres she
chooses to mow in a week.
a.
What is Anna’s MC function? How many acres should Anna choose to mow in order to maximize
profit?
b.
Calculate her maximum weekly profit.
c.
Graph her MC and ATC curves and label the area showing the amount of profit she earns.

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- Spring '08
- TEMPLE
- Supply And Demand