Question #1 a. For the following three cases, calculate i: The marginal revenue curve ii: The level of output where MR = MC (i.e., set the equation from item i equal to marginal cost and solve for Q) iii: The profit-maximizing price (i.e., plug your answer from equation ii into the demand curve) iv: Total revenue and total cost at this level of output v: total profit Case A: Demand: P = 40 − Q Fixed cost = 100 Marginal cost = 10 Case B: Demand: P = 100 − 2Q Fixed cost = 100 Marginal cost = 10Case C: Demand: P = 100 − 2Q Fixed cost = 100 Marginal cost = 20. b. What is the markup in each case? Measure it two ways: first in dollars, as price minus marginal cost, and then as a percentage markup [100 × (P – MC)/MC, reported as a percent c. If you solved part b correctly, you found that when costs rose from Case B to Case C, the monopolist’s optimal price increased....Why didn’t the monopolist charge that same higher price when costs were lower?
Question #1 a. For the following three cases, calculate i: The marginal revenue curve ii: The level of output where MR = MC (i.e., set the equation from item i equal to marginal cost and solve for Q) iii: The profit-maximizing price (i.e., plug your answer from equation ii into the demand curve) iv: Total revenue and total cost at this level of output v: total profit Case A: Demand: P = 40 − Q Fixed cost = 100 Marginal cost = 10 Case B: Demand: P = 100 − 2Q Fixed cost = 100 Marginal cost = 10Case C: Demand: P = 100 − 2Q Fixed cost = 100 Marginal cost = 20. b. What is the markup in each case? Measure it two ways: first in dollars, as price minus marginal cost, and then as a percentage markup [100 × (P – MC)/MC, reported as a percent c. If you solved part b correctly, you found that when costs rose from Case B to Case C, the monopolist’s optimal price increased....Why didn’t the monopolist charge that same higher price when costs were lower?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question #1
a. For the following three cases, calculate
i: The marginal revenue curve
ii: The level of output where
MR = MC (i.e., set the equation from item i equal to marginal cost and solve for Q)
iii: The profit-maximizing price (i.e., plug your answer from equation ii into the demand curve)
iv: Total revenue and total cost at this level of output
v: total profit
Case A: Demand: P = 40 − Q
Fixed cost = 100 Marginal cost = 10
Case B: Demand: P = 100 − 2Q
Fixed cost = 100 Marginal cost = 10
Case C: Demand: P = 100 − 2Q
Fixed cost = 100 Marginal cost = 20.
b. What is the markup in each case? Measure it two ways: first in dollars, as price minus marginal cost, and then as a percentage markup [100 × (P – MC)/MC, reported as a percent
c. If you solved part b correctly, you found that when costs rose from Case B to Case C, the monopolist’s optimal price increased....Why didn’t the monopolist charge that same higher price when costs were lower?
Expert Solution
Step 1
Given:
| Case A | Case B | Case C |
| Demand: P = 40 − Q | Demand: P = 100 − 2Q | Demand: P = 100 − 2Q |
| Fixed cost = 100 | Fixed cost = 100 | Fixed cost = 100 |
| Marginal cost = 10 | Marginal cost = 10 | Marginal cost = 20 |
To find:
i: The marginal revenue curve
ii: The level of output where MR = MC
iii: The profit-maximizing price
iv: Total revenue and total cost at this level of output
v: total profit
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