6) 115 points] A producer of ceramic bird houses is a monopolist and can produce

Question

6) 115 points] A producer of ceramic bird houses is a monopolist and can produce at a constant average and marginal cost of Originally, the firm faces a market demand curve given by and a margin revenue function given by a. Calculate the profit-maximizing price and quantity combination for the firm. What is the firm's b. Now assume that the market demand curve becomes steeper and is given by AC- MC-10 0-60-P MR-60-20. profit? Q-45-05P with marginal revenue of MR-90-40, what is thefinn's profit-maximizing price and quantity combination now? What is the firm's profit? c. Instead of the assumptions in part b, assume that the market demand curve becomes flatter and is given by 0 100-2P with marginal revenue of MR-50-Q. What is the firm's profit- maximizing price and quantity combination? What is the firm's profit? d. On the attached graph paper, plot the three different situations in parts a, b, and c'. It might be helpful to use a different color for each of the three demand curves and marginal revenue curves Using your results, explain why there is no meaningf house monopoly. (Hint: see page 372 of the text.) ion 6 results art a part b part c P* Please use the attached graph paper as it is scaled in such a way to better able to see relationships to which 1 am drawing your attention. An extra copy of the graph paper is available at D2L >Materials Contents > "Course Materials" module>"Problem Sets" submodule.

Explanation / Answer

a monopoly maximize his profit where the output for Marginal revenue is equal to marginal cost.

a) MR = 60-2Q and MC = 10

s0 , 60-2Q = 10

2Q = 50 or Q = 25

P = 60-25 = $35

so, profit = TR-TC

profit = ( 25*35) - ( 10*25) = 875 - 250 = $625.

b) MR = 90-4Q and MC = 10

90-4Q = 10

Q =20

and P = 90- 40  

or P = $50

profit = 1000 - 200 = $800

C ) MR = 50-Q and MC =10

50-Q = 10

Q = 40

and P = 50 - 0.5*40 = $30

profit = 1200-400= $800

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