nstructions: Enter your answers lecimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Suppose you have been tasked with regulating a single monopoly firm that sells 50-kilogram
bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $1 per
bag no matter how many bags are produced.
Instructions: Enter your answers as whole numbers. In part e, round your answer to 2
decimal places.
a. If this firm kept on increasing its output level, would ATC per bag ever increase?
(Click to select)
Is this a decreasing-cost industry? (Click to select)
b. If you wished to regulate this monopoly by charging the socially optimal price, what price
would you charge? $C
O per bag.
At that price, what would be the size of the firm's profit or loss?
At that price, the firm's (Click to select)|
|equals $C
)million.
Would the firm want to exit the industry? (Cick to select)
c. You find out that if you set the price at $2 per bag, consumers will demand 10 million bags.
How big will the firm's profit or loss be at that price? $0
d. If consumers instead demanded 20 million bags at a price of $2 per bag, how big would the
firm's profit or loss be?
At that price, the firm's (Click to select)
|equals $C
million.
e. Suppose that demand is perfectly inelastic at 20 million bags, so that consumers demand
20 million bags no matter what the price is.
What price should you charge if you want the firm to earn only a fair rate of return?
Assume as always that TC includes a normal profit.$C
per bag.
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