suppose you have been tasked with regulating a single monopoly firm that sells 5
ID: 1242290 • Letter: S
Question
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 $1 per bag no matter how many bags are produced? a. if this firm kept on increasing its output level, would ATC per bag ever increase? is this a decreasing-cost industry? b. if you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? at that price, what would be the size of the firm's profit or loss? would the firm want to exit the industry?Explanation / Answer
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 $1 per bag no matter how many bags are produced? a. if this firm kept on increasing its output level, would ATC per bag ever increase? is this a decreasing-cost industry? ATC would never increase since VC is fixed. Yes, this is a decreasing-cost industry since the long-run supply curve (ATC) is downward sloping. b. if you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? at that price, what would be the size of the firm's profit or loss? would the firm want to exit the industry? The socially optimal price is the price where P=ATC, which is the zero profit condition. At this price, the firm's profit will be zero. The firm will not want to exit in the short-run because they would lose their fixed costs by exiting. In the long-run, the firm will be indifferent between staying and exiting. Profit=PQ-10,000,000-Q 0=PQ-10,000,000-Q 10,000,000=PQ-Q 10,000,000=Q(P-1) P=(10,000,000/Q)+1 Please let me know if you have any questions.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.