Produces f amount of the good the price it sells the

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Intermediate Algebra
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Chapter 6 / Exercise 71
Intermediate Algebra
Mckeague
Expert Verified
produces “F” amount of the good, the price it sells the good for (“G”) is greater than the average cost per unit of producing this level of output. Since the price exceeds the ATC at this level of output then the firm must be earning positive economic profit. d) The socially optimal amount of the good is that quantity where the demand curve intersects the MC curve. From the graph we can locate this point and see that we have the following: (Q, P) = (E, 5). Let’s use the demand curve equation to solve for the value of “E”:
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Intermediate Algebra
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Chapter 6 / Exercise 71
Intermediate Algebra
Mckeague
Expert Verified
9 P = 30 – (1/5)Q but Q = E in this case, so P = 30 – (1/5)E 5 = 30 – (1/5)E E = 125 units of output Here’s the amended graph where the shaded area shows the total subsidy that the monopolist must receive if they are to produce the socially optimal amount of the good, “E”. e) If the monopolist is regulated by AC pricing regulation the monopolist will produce where P = ATC and this will occur at that quantity where the LRATC curve intersects the demand curve. In the provided graph we can see that this is at a quantity of 90 units. We can find the regulated price by using this quantity in the market demand curve: thus, P = 30 – (1/5)(Q) where Q is set to 90 units, the quantity where the firm will break even. P = 30 – (1/5)(90) P = 12 Here’s the amended graph: 5. Consider a market that is served by a single producer. This market has significant barriers to entry so the single producer has market power and is not likely to face any competition due to these barriers of entry. You are given the following information about this market: Market Demand: Q = 450 – 3P MC = 30 Fixed Cost for the Producer: FC = 50
10 a) Given the above information, if this producer acts as a single price monopolist, calculate the following: Profit maximizing quantity = ____________ Profit maximizing price = _________ Level of profits = ____________ Consumer Surplus = CS = ___________ Producer Surplus (remember you will need to adjust this to take into account FC) = PS = ___________ Deadweight Loss = ____________ Show your work and provide a graph to illustrate your answer. b) Suppose that this monopolist decides to practice second degree price discrimination. The monopolist decides that it will sell its first 90 units of the good produced for a price of $120 per unit, its next thirty units for a price of $110 per unit, its next sixty units for a price of $90 per unit, and a final thirty units for a price of $80 per unit. Given this information and the initial information, calculate the following for the monopolist who practices this second degree price discrimination: Total quantity produced by the second degree price discriminator = ____________ Prices charged by the second degree price discriminator = _________ Level of profits for the second degree price discriminator = ____________ Consumer Surplus in this case of second degree price discrimination = CS’ = ___________ Producer Surplus (remember you will need to adjust this to take into account FC) in this case of second degree price discrimination = PS’ = ___________ Deadweight Loss in this case of second degree price discrimination = ____________ Show your work and provide a graph to illustrate your answer. c) Compare your answers in (a) and (b). Does second degree price discrimination benefit

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