pretzels. If the fee must be paid multiple times (each year, for example), it becomes a fixed cost and will lead to an increase in ATC and a decrease in MC, causing a decrease in quantity produced and an increase in price.
Pietro 4 d. The city wants to raise as much revenue as possible, while ensuring that all 800 licenses are sold. How high should the city set the license fee? Show the answer on your graph. Where MC = MR 15.12) Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P = 1000 – 10Q Total Revenue: TR = 1000Q – 10Q 2 Marginal Revenue: MR = 1000 – 20Q Marginal Cost: MC = 100 + 10Q Where Q indicates the number of copies sold and P is the price in Ectenian dollars. a. Find the price and quantity that maximizes the company’s profit. b. Find the price and quantity that would maximize social welfare. c. Calculate the deadweight loss from monopoly. d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options: i. A flat fee of 2000 Ectenian dollars ii. 50% of the profits iii. 150 Ectenian dollars per unit sold iv. 50% of the revenue For each option, calculate the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the deadweight loss from monopoly? Explain. P > MR = MC Profit = TR – TC = (P – ATC)xQ ATC = TC/Q TC = FC + VC MC = changeTC/changeQ i. The company should make the same quantity and charge the same price as without the director’s fee because MC and MR do not change. Profits go down by $2000. This does not change the deadweight loss from monopoly.
Pietro 5 ii. The company should make the same quantity and charge the same price as without the director’s fee because MC and MR do not change. Profits go down by 50%. This does not change the deadweight loss from monopoly. iii. Deadweight loss increases because the company is selling even fewer DVDs than the previous, already-below-social-optimum level. iv. Again, deadweight loss increases because the company is selling fewer DVDs than the previous, already-below-social-optimum level. 15.13) Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, let’s assume that our
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