Economic profit =____$1,234 _ ________ Extra: At what output does the minimum cost per unit (AC) occur? Q =____4 units_________ AC = ___$8 _____________
What would the cost per unit be?
3. What happens if the monopolist in question 2 finds that their fixed costs have doubled in a new time-period? Find the monopolists profit maximizing quantity, price and profit.
Totalcos Tot alcostt wou would ld be be:: TC = 32+ Q
2
MC is unc unchan hanged ged Price Pri ce (P = $75) $75) andoutpu andoutputt (Q = 25) are unch unchang anged, ed,
Price = ___$75 ________________
Profit Pro fitss dro drop p by theincr theincreas easee in FC to $12 $1218 18 Quantity =__25 units ____________ Economic profit =_$1218 __________ 4. Now suppose the monopolist in problem 2 has a total cost curve (TC = 16 + 4Q2). Find the monopolists profit maximizing quantity, price and profit. MCis now: MC =8Q MC = MR 8Q = 100 - 2Q Q=10 P = 100-10 = 9 0
Price = ___$90 _________________
Quantity =__10 units ____________
TR = PQ =$900 2 TC=16+4(10) =$416 π =$484
Economic profit =_____$484 ________
8. The demand by senior citizens (me) for movies at the local theatre has a constant price elasticity of –4. The demand for all other patrons (you) has a constant price elasticity of demand equal to –2. The marginal cost per patron is $1, how much should the theatre charge each group?
MR = P 1-
EP 1
MC = 1
1
-4
Seniors:MR = P 1-
P (.75) = 1 Pseniors = $1.33
=1= MC Price for seniors = ____$1.33 ________
1
-2
All others: MR = P 1-
=1= MC
P(.5) =1 Pothers = $2 Price to others =______$2.00 _________ During the Iran-Iraq War, you were a monopolist who produced Exocets sold missiles to both sides. Production is subject to constant returns to scale and the MC = $200. Iraq’s demand for missiles is P = 400 -.5Q, Iran’s is P = 300 – Q. Price is given in millions of dollars.
Iraq: P=400-.5Q 2 TR = 400Q-.5Q MR = 400 - Q MC=200 MR = 400- Q = 200= MC Q=200 by substitution, P = $300
What price would you have charged each country to maximize your profits? Price to Iran, Piran = $250 __________
Units sold to Iran = 50 Units ________
Iran: P=300-Q 2 TR = 300Q- Q MR = 300 - 2Q MC=200 MR = 300- 2Q= 200= MC Q=50 by substituti on, P = $250
Price to Iraq, Piraq = $300 ___________
Units sold to Iraq =200 units ________
Given the Iraq and Iran’s demand for missiles above what would be the quantities sold to the two countries and the prices if there were decreasing returns to scale and the TC were (TC = 100 + .5Q2)?
MC=Q
Price to Iran, Piran = $260 _____________ Units sold to Iran = 40 units __________ Price to Iraq, Piraq = _$310 ____________ Units sold to Iraq = _180 units _______
