D. Market for Beer Bud Owen operates Bud's Package Store in a small college town. Bud sells six packs of beer for off-premises consumption. Bud's is the only beer retailer physically located within the town limits. He faces considerable competition, however, from sellers located outside of town. Bud regards the market as highly competitive and considers the current $2.50 per six pack selling price to be beyond his control. Bud's total and marginal cost functions are: TC = 2000+ 0.0005Q2 MC = 0.001Q where Q refers to six packs per week. a. Calculate the profit maximizing output for Bud. What is his economic profit? Is Bud's current condition a long run or a short run equilibrium situation? Why? b. The town council has voted to impose a tax of $1 per six pack sold in the town, hoping to discourage beer consumption. What impact will the tax have on Bud's profit (compute), given that his total cost and marginal cost functions with the tax are as follows? TC = 2000+ 0.0005Q2 + 1Q MC = 0.001Q + 1| c. Given your answer in 2) should Bud continue to operate his business or not? Explain briefly.

D. Market for Beer Bud Owen operates Bud's Package Store in a small college town. Bud sells six packs of beer for off-premises consumption. Bud's is the only beer retailer physically located within the town limits. He faces considerable competition, however, from sellers located outside of town. Bud regards the market as highly competitive and considers the current $2.50 per six pack selling price to be beyond his control. Bud's total and marginal cost functions are: TC = 2000+ 0.0005Q2 MC = 0.001Q where Q refers to six packs per week. a. Calculate the profit maximizing output for Bud. What is his economic profit? Is Bud's current condition a long run or a short run equilibrium situation? Why? b. The town council has voted to impose a tax of $1 per six pack sold in the town, hoping to discourage beer consumption. What impact will the tax have on Bud's profit (compute), given that his total cost and marginal cost functions with the tax are as follows? TC = 2000+ 0.0005Q2 + 1Q MC = 0.001Q + 1| c. Given your answer in 2) should Bud continue to operate his business or not? Explain briefly.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter11: Price And Output Determination: Monopoly And Dominant Firms

Section: Chapter Questions

Problem 3E

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