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Economics Homework

Essay by   •  January 24, 2017  •  Coursework  •  696 Words (3 Pages)  •  927 Views

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Problem Set 3

Output

Total Fixed

Total Variable

Average Fixed

Average Variable

Average Total Cost

Marginal Cost

Price

Total Revenue

Marginal Revenue

Profit

0

30

0

30

36

0

1

30

9

39

30

9

9

33.5

33.5

33.5

-5.5

2

30

17

47

15

8.5

8

31

62

28.5

15

3

30

24

54

10

8

7

28.5

85.5

23.5

31.5

4

30

30

60

7.5

7.5

6

26

104

18.5

44

5

30

37

67

6

7.4

7

23.5

117.5

13.5

50.5

6

30

45

75

5

7.5

8

21

126

8.5

51

7

30

54

84

4.285714286

7.714285714

9

18.5

129.5

3.5

45.5

8

30

65

95

3.75

8.125

11

16

128

-1.5

33

9

30

78

108

3.333333333

8.666666667

13

13.5

121.5

-6.5

13.5

10

30

93

123

3

9.3

15

11

110

-11.5

-13

B. The monopolist will produce 6 units and charge $21 for each.

C. The formula is Profit = Total Revenue - Total Cost. The profit-maximizing quantity will be 6 (and the profit will be $51), which is the same as the quantity from part (b).

D. The formulas for profit or loss per unit are Profit (Loss) per unit = Price - Average Cost or Profit(Loss) per unit = Profit/Output. In both cases, you should find that the he monopolist will make profit per unit equal to $8.5. I urge you to use the first formula since you can also apply it for a perfectly-price discriminating monopoly where the profit will be different for each unit.

E. Now assume that our monopolist is able to perfectly price discriminate and find the quantity that the monopolist will supply in the market and the equilibrium market price.

The perfect price discriminating monopolist will produce that quantity where its MR = MC. For the perfect price discriminating monopolist, its MR curve is the same as its demand curve since for every unit of the good it produces it charges a price equal to the price on the demand curve associated with that quantity. Hence, the perfect price discriminating monopolist will produce 9 units and charge each consumer the highest price that he is willing to pay. There will be no single market price.

F. Calculate the profits for the monopolist under price discrimination.

The profit for the monopolist will be the difference between the total revenue and the total cost. Total revenue equals 211.5 and total cost equals 108. Therefore, the profit for the monopolist will be $103.50

G. Comment on the differences between the cases when the monopolist is not able to price discriminate and when she is. Compare the two cases in terms of market price, quantity supplied, and profits for the monopolist.

If the monopolist is perfectly price discriminating, the lowest price for which the good could be bought in the market will be lower than the price in the case when the monopolist does not price discriminate. The quantity sold in the market will be bigger, and the monopolist will make more profits.

  1. A. Graph

[pic 1]

B. Area ocef represents the revenue for the monopolist.

C. Area ocba represents the total cost for the monopolist.

D. Area abef represents the profit for the monopolist.

E. The profit (loss) per unit, which is the difference between price and average cost, could be represented by both segments af or eb.

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