2. A single firm monopolizes the entire market for Batman masks and can produce at constant average and marginal costs of 10. Originally, the firm faces a market demand curve given by Q = 60 - P. a) Calculate the profit-maximizing price-quantity combination for the firm. What are the firm's profits? (Answer: Q=25 units; = = $625) b) Now assume that the market demand curve becomes steeper and is given by: Q=450.5P. What is the firm's profit-maximizing price-quantity combination now? What are the firm's profits? c) Instead of the assumptions in part b, assume that the market demand curve becomes flatter and is given by: Q = 100 – 2P. What is the firm's profit-maximizing price- quantity combination now? What are the firm's profits? d) In each case, compute the demand elasticity for the profit-maximizing price-quantity combination and the markup. Can you find any relationship between the markup and the elasticity? (Answer: Ep₁ =— 1,4; P₁ — MC = 25) e) Graph the three different situations of part a, part b, and part c using just one graph.

2. A single firm monopolizes the entire market for Batman masks and can produce at constant average and marginal costs of 10. Originally, the firm faces a market demand curve given by Q = 60 - P. a) Calculate the profit-maximizing price-quantity combination for the firm. What are the firm's profits? (Answer: Q=25 units; = = $625) b) Now assume that the market demand curve becomes steeper and is given by: Q=450.5P. What is the firm's profit-maximizing price-quantity combination now? What are the firm's profits? c) Instead of the assumptions in part b, assume that the market demand curve becomes flatter and is given by: Q = 100 – 2P. What is the firm's profit-maximizing price- quantity combination now? What are the firm's profits? d) In each case, compute the demand elasticity for the profit-maximizing price-quantity combination and the markup. Can you find any relationship between the markup and the elasticity? (Answer: Ep₁ =— 1,4; P₁ — MC = 25) e) Graph the three different situations of part a, part b, and part c using just one graph.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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