6. Understanding the kinked demand curve modelHappyland is one of five amusement parks on Sunshine Island. The following graph shows Happyland's kinked demand curve (D₁ - D₂) and theresulting marginal revenue curve (MR₁-MR₂). The graph also shows two possible marginal cost curves (MC₁ and MC₂).PRICE(Dollars per ticket)83330527 +24211815129630MR.03D.MR6 9 12 15 18 21 24 27QUANTITY (Millions of tickets per year)30MCMC₂D33 36?Assume Happyland's marginal cost is represented by MC₂. Happyland will set a price ofper ticket.According to the kinked demand curve model, if one firmits price, other firms will do likewise to retain their market share, but if one firmits price, other firms will not follow suit. Therefore, if Happyland increases its price to above the price you just found for Happyland, itscompetitors willThe basic principle behind the kinked demand curve model explains why the D₁ portion of the kinked demand curve is relativelyD₂ portion.If Happyland's marginal cost increased from MC₂ to MC₁ on the graph, Happyland wouldelastic than the

A demand curve shows the connection between the cost of a commodity or service and the volume…

Answered: 6. Understanding the kinked demand…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Problem two Consider the total cost and total revenue given in the following table: Total Total Quantity cost Revenue 0 1 2 3 4 5 6 7 8 9 10 11 13 19 27 37 0 8 16 24 32 40 48 56 a) Calculate the profit for each quantity. How much should the firm produce to maximize profit? b) Calculate the marginal revenue and marginal cost for each quantity. Graph them. c) Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?
DuopolyMarket for mechanical pencils can be described by the following demand schedule:Price | Number of pencils demanded$6 | 80$5 | 200$4 | 320$3 | 440$2 | 560$1 | 680$0 | 800The fixed cost is $340, while the variable cost is $0.50.a) For each price, find the total revenue, the total cost, and the profit.b) If the market was under perfect competition, what would be the price and the quantity ofpencils traded in the long run? Why?c) If there was only one seller on the market, what would be the price and the quantity ofpencils traded? Why?d) If there were two firms on the market and they agreed to cooperate, how much would eachfirm need to produce? Follow the procedure outlined in the lecture and show that the otherfirm would prefer to deviate from the agreement.e) When the firms deviate from the agreement, there is a new optimal level of output. Showwhether the firms have an incentive to deviate from that level?f) If there were two firms on the market, what would be the price and the…
Answer the questions based on the table below - Complete the table below. - In which market does this firm operate? Explain your reasons. - Determine the equilibrium output. Calculate whether the firm will it be earning a profit or suffering a loss at equilibrium. Quantity(unit) Total Revenue($) Average Revenue($) MarginalRevenue($) TotalCost($) MarginalCost($) 1 10 5 2 18 11 3 24 16 4 28 20 5 30 23 6 30 25
Problem #1: Assume that the following marginal costs exist in catfish production: 17 Quantity Produced (units per day) Marginal Cost (per unit) 10 11 12 13 14 15 16 $4 6 8 10 12 14 16 18 (a) Graph the MC curve. (b) Use the data on market demand below and graph the demand and MR curves on the same graph. Quantity demanded (units per day) 10 Price (per unit) 11 12 13 14 15 16 17 $25 24 23 22 21 20 19 18 (c) At what rate of output is MR = MC?
Perfect Competition MC - Marginal Cost MR - Marginal Revenue ATC - Average Total Cost Refer to the figure above. If this firm is producing the profit-maximizing quantity and selling it at the profit-maximizing price, the firm's total revenue will be: $240 $90 $60 $180
Question 4: Profit Maximization Price per Quantity Marginal Use the table on the left to answer the following sub-questions. (Hint: It may be useful to draw a diagram based on the information provided to Unit Demanded Revenue $100 $90 40 $90 help you visualize the question.) $80 80 $70 Imagine that a vaccine for COVID-19 is designed, patented and produced by PharmaCo, Inc.; so, now PharmaCo, Inc. is a monopolist producer of this new vaccine that everyone needs. Phar- maCo, Inc. has a constant marginal cost of pro- duction of $10 per unit of the vaccine. For sim- plicity, we will say that average total cost is also constant at $10 per unit. $70 120 $50 $60 160 $30 $50 200 $10 $40 240 -$10 $30 280 -$30 $20 320 -$50 $10 360 -$70 1. How many units of the vaccine will PharmaCo, Inc. produce and supply? Why? 2. How much profit is earned by Pharmaco, Inc. if it produces the quantity you mentioned above? 3. If Pharmaco, Inc. did not have a patent, and the market were perfectly competitive with…
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11. In which market structure will a firm choose to stay in business (i.e. not shut down) when P
Samurai Sam's, a producer of frozen sushi, is a monopolistically competitive firm. The firm is currently selling frozen California rolls at a $4 price. Samurai Sam's marginal cost is $1.75 and its marginal revenue is $1.50. The firm should ________ to maximize profits in the short run. Question 7Answer a. continue to produce the same output level b. decrease output to where marginal revenue just equals marginal cost c. increase output to where marginal revenue just equals marginal cost d. Indeterminate from the given information.
4. Pat's Hair Designs is part of a monopolistically competitive haircut market in Berkeley. (a) At present, Pat is earning positive profits by running the haircut business. Draw a diagram illustrating Pat's profit-maximizing price and quantity of haircuts. Explain what your diagram shows, including a descritpion of what each line in your diagram represents. (b) Is the haircut market in Berkeley in long-run equilibrium? If it is, explain why. If it is not, draw a diagram illustrating Pat's profit-maximizing price and quantity of haircut in the long-run equilibrium (Assume Pat's remains in the market). Explain how the market moves from the equilibrium you drew in (a) to the one here. (In other words, explain which curves move and why.)
3. The components of marginal revenue Lorenzo's Fire Engines is the sole seller of fire engines in the fictional country of Pyrotania. Initially, Lorenzo produced five fire engines, but he is considering increasing production to six fire engines. The following graph shows the demand curve Lorenzo faces. As you can see, to sell the additional engine, Lorenzo must lower his price from $105,000 to $90,000 per fire engine. Note that although Lorenzo would gain revenue from the additional engine he sells, he would also lose revenue from the initial five engines because he would have to sell them all at the lower price. Use the purple rectangle (diamond symbols) to shade the area representing the revenue lost from the initial five engines by selling at $90,000 rather than $105,000. Then use the green rectangle (triangle symbols) to shade the area representing the revenue gained from selling an additional engine at $90,000. PRICE (Thousands of dollars per fire engine) 150 135 120 105 90 75 60…
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