The graph above shows the cost and demand curves for a dry-cleaner that has a mo

ID: 1159245 • Letter: T

Question

The graph above shows the cost and demand curves for a dry-cleaner that has a monopoly in a small town.

A) Based on the previous chapter, what is

1. The profit maximizing output for the firm?

2. The price charged for dry-cleaning?

3. What will the total profit earned by the firm be?

B) If the town council decides to regulate the dry-cleaner using cost-plus regulation,

1. what will output be for the firm?

2. What price will the firm charge?

3. Will the firm be earning a profit or a loss?

Price and cost (dollars per article of clothing) 10- MC ATC MR 0 10 20 30 4050 0 Quantity (articles of clothing per day)

A) Profit is maximised when MR=MC

Thus MR-Mc intersects at quantity=20

2)Price charged will be on demamd curve. Thus P=6 when q=20

3) Profit=TR-TC=P*Q-AC*Q=(P-AC)*Q=(6-3)*20=3*20=$60

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