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    Problem Set Chapter 9

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    JOSÉ MIGUEL VICUÑA HERRERA
    This document contains a multi-part economics problem set examining concepts such as average fixed and total costs, marginal revenue, profit maximization for monopolies and natural monopolies, and consumer surplus. Questions analyze costs and market share for two car manufacturers, the socially optimal price for a natural monopoly to charge, marginal revenue curves and profit-maximizing prices for different markets facing a movie theater monopoly, demand and marginal cost curves and the equilibrium price and quantity for a video game monopolist, marginal revenue and profit-maximization for a child's lemonade stand monopoly, and comparisons of profit-maximization versus total surplus maximization outcomes.

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    Problem Set Chapter 9

    Uploaded by

    JOSÉ MIGUEL VICUÑA HERRERA
    46 views3 pages
    This document contains a multi-part economics problem set examining concepts such as average fixed and total costs, marginal revenue, profit maximization for monopolies and natural monopolies, and consumer surplus. Questions analyze costs and market share for two car manufacturers, the socially optimal price for a natural monopoly to charge, marginal revenue curves and profit-maximizing prices for different markets facing a movie theater monopoly, demand and marginal cost curves and the equilibrium price and quantity for a video game monopolist, marginal revenue and profit-maximization for a child's lemonade stand monopoly, and comparisons of profit-maximization versus total surplus maximization outcomes.

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    e 202 Problems Etch 09

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    This document contains a multi-part economics problem set examining concepts such as average fixed and total costs, marginal revenue, profit maximization for monopolies and natural monopolies, and consumer surplus. Questions analyze costs and market share for two car manufacturers, the socially optimal price for a natural monopoly to charge, marginal revenue curves and profit-maximizing prices for different markets facing a movie theater monopoly, demand and marginal cost curves and the equilibrium price and quantity for a video game monopolist, marginal revenue and profit-maximization for a child's lemonade stand monopoly, and comparisons of profit-maximization versus total surplus maximization outcomes.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    46 views3 pages

    Problem Set Chapter 9

    Uploaded by

    JOSÉ MIGUEL VICUÑA HERRERA
    This document contains a multi-part economics problem set examining concepts such as average fixed and total costs, marginal revenue, profit maximization for monopolies and natural monopolies, and consumer surplus. Questions analyze costs and market share for two car manufacturers, the socially optimal price for a natural monopoly to charge, marginal revenue curves and profit-maximizing prices for different markets facing a movie theater monopoly, demand and marginal cost curves and the equilibrium price and quantity for a video game monopolist, marginal revenue and profit-maximization for a child's lemonade stand monopoly, and comparisons of profit-maximization versus total surplus maximization outcomes.

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    Problem Set Chapter 9 Name _____________________

    1. Two car manufacturers, Saab and Volvo, have fixed costs of $1 billion and constant marginal
    costs of $10,000 per car. If Saab produces 50,000 cars per year and Volvo produces 200,000,
    calculate the average fixed cost and average total cost for each company. On the basis of these
    costs, which company’s market share should grow in relative terms?

    6. What is the socially desirable price for a natural monopoly to charge? Why will a natural
    monopoly that attempts to charge the socially optimal price invariably suffer an economic loss?

    8. Suppose that Aggieland Cinema is a local monopoly whose demand curve for regular adult
    tickets on Saturday night is P = 12 - 2Q, where P is the price of a ticket in dollars and Q is the
    number of tickets sold in hundreds. The demand for student tickets on Sunday afternoon is P = 8
    - 3Q, and for regular adult tickets on Sunday afternoon, P = 10 - 4Q. On both Saturday night and
    Sunday afternoon, the marginal cost of an additional patron, student or not, is $2.

    a. What is the marginal revenue curve in each of the three markets?

    b. What price should the cinema charge in each of the three markets to maximize profits?
    9. Suppose you are a monopolist in the market for a specific video game. Your demand curve is
    given by P = 80 - Q/2, and your marginal cost curve is MC = Q. Your fixed costs equal $400.
    a. Graph the demand and marginal cost curve.

    b. Derive and graph (above) the marginal revenue curve.

    c. Calculate and indicate on the graph the equilibrium price and quantity.

    d. What is your profit?

    e. What is the level of consumer surplus?


    10. Beth is a second-grader who sells lemonade on a street corner in your neighborhood. Each
    cup of lemonade costs Beth 20 cents to produce; she has no fixed costs. The reservation prices
    for the 10 people who walk by Beth’s lemonade stand each hour are listed in the table below.
    Beth knows the distribution of reservation prices (that is, she knows one person is willing to pay
    $1.00, another $0.90, and so on), but does not know any specific individual’s reservation price.

    a. Calculate the marginal revenue of selling an additional cup of lemonade. (Start by figuring out
    the price Beth would charge if she produced only one cup of lemonade, and calculate the total
    revenue; then find the price she would charge if she sold two cups of lemonade; and so on.)

    Person A B C D E F G H I J
    Reservation price $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10
    Quantity in cups 1 2 3 4 5 6 7 8 9 10
    Total revenue
    Marginal revenue

    b. What is Beth’s profit maximizing price and quantity?

    c. At that price, what are Beth’s economic profit and total consumer surplus?

    d. What price should Beth charge if she wants to maximize total economic surplus? What
    quantity would she sell? How much would total economic surplus be?

    e. Now suppose Beth can tell the reservation price of each person. What price would she charge
    each person if she wanted to maximize profit? Compare her profit to the total surplus calculated
    in part d.

    On my honor, as an Aggie, I have neither given nor received unauthorized aid on this assignment.

    Signature _____________________

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