Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $6 per bag no matter how many bags are produced. Instructions: Enter your answers as a whole number. In part e, round your answer to two decimal places. a. If this firm keeps increasing its output level, will ATC per bag ever increase? No Are there economies of scale at all levels of output? No b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? $ per bag At that price, the size of the firm's profit would be $ million. Will the firm want to exit the industry? No c. You find out that if you set the price at $7 per bag, consumers will demand 10 million bags. At that price, the firm's profit or loss will be $[ million. d. If consumers instead demanded 20 million bags at a price of $7, how big would the firm's profit or loss be? At that price, the size of the firm's (Click to select) : would be $[ 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. $
Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $6 per bag no matter how many bags are produced. Instructions: Enter your answers as a whole number. In part e, round your answer to two decimal places. a. If this firm keeps increasing its output level, will ATC per bag ever increase? No Are there economies of scale at all levels of output? No b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? $ per bag At that price, the size of the firm's profit would be $ million. Will the firm want to exit the industry? No c. You find out that if you set the price at $7 per bag, consumers will demand 10 million bags. At that price, the firm's profit or loss will be $[ million. d. If consumers instead demanded 20 million bags at a price of $7, how big would the firm's profit or loss be? At that price, the size of the firm's (Click to select) : would be $[ 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. $
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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only subpart questions d) & e)
Transcribed Image Text:Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs
of $10 million per year and a variable cost of $6 per bag no matter how many bags are produced.
Instructions: Enter your answers as a whole number. In part e, round your answer to two decimal places.
a. If this firm keeps increasing its output level, will ATC per bag ever increase?
No
=
Are there economies of scale at all levels of output?
No
÷
b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge?
$
per bag
At that price, the size of the firm's profit
would be $
million.
Will the firm want to exit the industry?
No
c. You find out that if you set the price at $7 per bag, consumers will demand 10 million bags.
At that price, the firm's profit or loss will be $
million.
d. If consumers instead demanded 20 million bags at a price of $7, how big would the firm's profit or loss be?
At that price, the size of the firm's (Click to select) : would be $
| 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.
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