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(a) Let the competitive market price be $4.00: calculate the total consumer surplus in the market at this price. (b) Assume now that there is only a single seller of papadums, and she knows each buyer's willingness to pay. Assume that this seller incurs a cost of $4.00 per unit of papadum produced (i.e., the marginal cost is constant). If she intends to maximise profits, how many papadums would this seller supply to the market, and what price would she charge? Remember, the price has to be the same for each unit sold. Hint: start at a price of $17 and calculate what profit would be. Then lower the price just enough to attract an additional buyer and calculate what the new profit would be. Repeat this until all four buyers are purchasing the good and then check which price yields the highest profit. Alternatively, you can calculate the marginal revenue from lowering the price to attract an additional buyer and compare it to marginal cost. (c) Caleulate the producer surplus and consumer surplus at the monopoly price and production level from (b). Are consumers better off or worse off in the monopoly situation relative to the competitive market? Why?

(a) Let the competitive market price be $4.00: calculate the total consumer surplus in the market at this price. (b) Assume now that there is only a single seller of papadums, and she knows each buyer's willingness to pay. Assume that this seller incurs a cost of $4.00 per unit of papadum produced (i.e., the marginal cost is constant). If she intends to maximise profits, how many papadums would this seller supply to the market, and what price would she charge? Remember, the price has to be the same for each unit sold. Hint: start at a price of $17 and calculate what profit would be. Then lower the price just enough to attract an additional buyer and calculate what the new profit would be. Repeat this until all four buyers are purchasing the good and then check which price yields the highest profit. Alternatively, you can calculate the marginal revenue from lowering the price to attract an additional buyer and compare it to marginal cost. (c) Caleulate the producer surplus and consumer surplus at the monopoly price and production level from (b). Are consumers better off or worse off in the monopoly situation relative to the competitive market? Why?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(a) Let the competitive market price be $4.00: calculate the total consumer surplus in the market at this price. (b) Assume now that there is only a single seller of papadums, and she knows each buyer's willingness to pay. Assume that this seller incurs a cost of $4.00 per unit of papadum produced (i.e., the marginal cost is constant). If she intends to maximise profits, how many papadums would this seller supply to the market. and what price would she charge? Remember, the price has to be the same for each unit sold. Hint: start at a price of $17 and calculate what profit would be. Then lower the price just enough to attract an additional buyer and calculate what the new profit would be. Repeat this until all four buyers are purchasing the good and then check which price yields the highest profit. Alternatively, you can calculate the marginal revenue from lowering the price to attract an additional buyer and compare it to marginal cost. (c) Calculate the producer surplus and consumer surplus at the monopoly price and production level from (b). Are consumers better off or worse off in the monopoly situation relative to the competitive market? Why?
Transcribed Image Text:(a) Let the competitive market price be $4.00: calculate the total consumer surplus in the market at this price. (b) Assume now that there is only a single seller of papadums, and she knows each buyer's willingness to pay. Assume that this seller incurs a cost of $4.00 per unit of papadum produced (i.e., the marginal cost is constant). If she intends to maximise profits, how many papadums would this seller supply to the market. and what price would she charge? Remember, the price has to be the same for each unit sold. Hint: start at a price of $17 and calculate what profit would be. Then lower the price just enough to attract an additional buyer and calculate what the new profit would be. Repeat this until all four buyers are purchasing the good and then check which price yields the highest profit. Alternatively, you can calculate the marginal revenue from lowering the price to attract an additional buyer and compare it to marginal cost. (c) Calculate the producer surplus and consumer surplus at the monopoly price and production level from (b). Are consumers better off or worse off in the monopoly situation relative to the competitive market? Why?
The following Table refers to four buyers' willingness to pay for papadums. Each buyer is willing to buy at most one papadum and no more. Table 1 Willingness to pay ($) for one раpadum Buyer Lincoln 17.00 Jefferson 15.00 Franklin 9.00 Washington 3.00
Transcribed Image Text:The following Table refers to four buyers' willingness to pay for papadums. Each buyer is willing to buy at most one papadum and no more. Table 1 Willingness to pay ($) for one раpadum Buyer Lincoln 17.00 Jefferson 15.00 Franklin 9.00 Washington 3.00
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