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Suppose that the market for Koffie Kreamer is characterized by the following demand relationships. Demand:
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Question

1.     Suppose that the market for Koffie Kreamer is characterized by the following demand relationships.

Demand:         P=70-2Q

            

where Q is the number of cases of Koffie Kreamer and P is the price of a case of Koffie Kreamer. Further, suppose that the market is a monopoly and that Blair's Koffie Kreamer, the only producer, has a constant marginal cost, MC=$10. 


a.     Graph the demand and marginal revenue curves. Make sure to appropriately label both axes and all intercepts.

b.     Graph the marginal cost curve. Make sure to appropriately label all intercepts.

c.     Find the Blair's profit maximizing quantity (Q*) and price (P*). 


Answer: 

MR = MC

70 -4Q =10                                         P* = 70 - 2(15)

-4Q = -60                                            P* = 70-30

Q* = 15                                               P* = 40

d.     Calculate the amount of consumer surplus at the market equilibrium. In the graph you constructed in part (a) and part (b), shade the area that relates to consumer surplus in red.


Answer:

C/S = ½(70-40)(15)

C/S = ½ (30)(15)

C/S = 225


e.     Calculate the amount of consumer surplus that you would expect to arise in this market, had it been perfectly competitive --  and served by many firms that are identical to Blair's Koffie Kreamer.


Can you please answer e and provide a graphical solution. Not sure where ATC comes from in this problem

Step-by-step answer

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