02 Jun Question HOMEWORK – UNIT 7 PERFECT COMPETITION and THE SUPPLY CURVE & MONOPOLY
Question
HOMEWORK – UNIT 7
PERFECT COMPETITION and THE SUPPLY CURVE & MONOPOLY
Chapter 13 / PERFECT COMPETITION and THE SUPPLY CURVE
1. Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs$500 per dayand is the onlyfixed input. His variable costs are comprised of the wages paid to the few workers he employs at the dairy and the grain he feeds to his dairy cows.
Thevariable cost associated with each level of output is given in the accompanying table.
Gallons of Milk
Variable Cost
0
–
1000
$ 2,100
2000
$ 2,200
3000
$ 3,380
4000
$ 3,600
5000
$ 3,900
a. Calculate thetotal cost, theaverage variable cost, theaverage total cost, and themarginal cost for each quantity of output.
Gallons of Milk
FC
VC
TC
MC
AVC
ATC
0
$500
–
1000
500
$ 2,100
2000
500
$ 2,200
3000
500
$ 2,900
4000
500
$ 3,680
5000
500
$ 5,180
b. What is thebreak-even price?
c.What is theshut-down price?
d. Suppose that theprice at which Joe can sell milk is $3 pergallon. In the short run, will Joe earn a profit?
e. In the short run, should heproduce orshut downabove ?
f. Now suppose that theprice at which Joe can milk is$1.50 pergallon. In the short run, will Joe earn aprofit?
g. In the short run, should heproduce orshut down?
h. Finally, Suppose that theprice at which Joe can sell milk is$0.50 pergallon. In the short run, will Joe earn aprofit?
i.In the short run, should heproduce orshut down?
Chapter 14 / MONOPOLY
2.
Suppose that Media Cable is a single-price monopolist in the market for cable in Anywhere, Iowa. Media has five potential customers: Morgan, Larry, Clyda, Janet, and Tom.
Each of these customers are willing to purchase cable service, but only if the price is just equal to, or lower than, his or her willingness to pay. Morgan’s willingness to pay is $180; Larry’s, $100; Clyda’s, $70; Janet’s, $40; and Tom’s, $0.
Media Cable’smarginal cost per cable package is $40. The demand schedule for cable service packages is shown in the accompanying table.
Price of Cable Service
Quantity of Cable Service Demanded
160
0
130
1
100
2
70
3
40
4
0
5
a. Calculate Media Cable’stotal revenue and itsmarginal revenue
Price of Cable Service
Qty of Cable Service demanded
Total Revenue
Marginal Revenue
$160
0
130
1
100
2
80
3
40
4
0
5
b. Explain why a monopolist, such as Media Cable, faces a downward-sloping demand curve
c. Explain why the marginal revenue from an additional sale is less than the price of the service
d.Suppose Media Cable currently charges $70 for its service. If it lowered the price to $40, how large is theprice effect?
e. How large is thequantity effect?
f. What is the profit maximizing quantity and price for Media Cable?
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