12 May HOW MUCH PROFIT (OR LOSS) CAN THE MANAGER OF EVERKLEEN POOL SERVICES EXPECT TO EARN?
Construct the marginal revenue product
(MRP) schedule by filling in the blanks in the table.
b. If the manager of All City Realtors
must pay a wage rate of $30,000 per year to get agents who will specialize in
selling RTC housing, how many agents should the manager hire? Why?
c. If the wage rate falls to $14,000 per
year, how many agents should the manager hire?
Q2: CH 11 (15%)
EverKleen Pool
Services provides weekly swimming pool maintenance in Atlanta. Dozens of firms
provide this service. The service is standardized; each company cleans the pool
and maintains the proper levels of chemicals in the water. The service is
typically sold as a four- month summer contract. The market price for the
four-month ser-vice contract is $115. EverKleen Pool Services has fixed costs
of $3,500. The manager of EverKleen has estimated the following marginal cost
function for EverKleen, using data for the last two years:
SMC = 125- 0.42Q +
0.0021Q2
where SMC is
measured in dollars and Q is the number of pools serviced each summer.
a. Given the estimated marginal cost
function, what is the average variable cost function for EverKleen?
b. Should the manager of EverKleen
continue to operate, or should the firm shut down? Explain.
c. How much profit (or loss) can the
manager of EverKleen Pool Services expect to earn?
Q3:
CH 12 (15%)
QuadPlex
Cinema is the only movie theater in Idaho Falls. The nearest rival movie theater,
the Cedar Bluff Twin, is 35 miles away in Pocatello. Thus QuadPlex Cinema
possesses a degree of market power. Despite having market power, QuadPlex
Cinema is currently suffering losses. In a conversation with the owners of
QuadPlex, the manager of the movie theater made the following suggestions:
Since QuadPlex is a local monopoly, we should just increase ticket prices
until we make enough profit.
a. Comment on this strategy. Will it work in
short run?
b. Is the Lerner index an appropriate measure for
the market power of QuadPlex Cinema? Please explain your answer briefly.
c. What options should QuadPlex consider in the
long run?
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