Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 13, Problem 2.4P
To determine
Marginal revenue schedule and profit maximizing output.
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You own a road resurfacing business called Dahyun Bricks services located in Seoul. You
are the only reservicing business in South Korea. Therefore, you have a local monopoly.
Your experience running the company for many years has taught you that market
demand for your service can be described by the demand function:
p = 20 - Q.
The cost function is c =q². Therefore, marginal cost equals 2q. Quantity refersto square
metre of road resurfacing. Note the Q denotes aggregate market demand and q denotes
your production. Of course, if you are the only supplier than q = Q.
a) Compute profit maximising price and output. Compute profits.
b) The monopoly profit that you have been earning has attracted attention
from another firm that will set up operations in South Koreaand
compete for market share. You are concerned with losing market share
and profit. So, you offer the potential entrant the following deal. Both
firms agree to maximise industry profits (joint profits). The potential
entrant…
You are the manager of a monopoly. A typical consumer's inverse demand function for your firm's product is P = 250- 4Q, and your cost function is TC = 10Q. A. MC is fixed and is equal to $10 (MC=AC=S). MR=250-8Q.
(P=price, Q=quantity of output, TC=total cost, MC=marginal cost, MR=marginal revenue, S=supply)
What price the company should choose to get maximum profit if the company will use ordinary pricing strategy?
Now suppose the company is thinking about using price discrimination for lower income group of customers. If the company will offer discount of $30 in price to the lower income groups how much additional profit will the company earn? Illustrate graphically.
Explain the conditions needed to apply the price discrimination strategy?
A monopoly produces widgets at a marginal cost of $10 per unit and zero fixed costs. It faces an inverse demand function given by P = 50 - Q. What is the profit under monopoly?
Chapter 13 Solutions
Principles of Economics (12th Edition)
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