ECON-100 FA4 Chapter 15: Chapter 15 Q&A
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Question 3
Suppose a baseball manufacturer has acquired a monopoly on the production of baseballs, and faces the following demand and cost situation:
Price | Quantity (Per week) | Total revenue | marginal revenue | Total cost | Marrginal Cost |
$20 | 15,000 | $330,000 | |||
$19 | 20,000 | 365,000 | |||
$18 | 25,000 | 405,000 | |||
$17 | 30,000 | 450,000 | |||
$16 | 35,000 | 500,000 | |||
$15 | 40,000 | 555,000 |
a Reconstruct the above table in your answer sheet and fill in the table.
b If the firm would like to maximise profits, what price should it charge and how many baseballs should it sell? Briefly explain.
Just Me Inc. is the only provider of high-speed internet in Tinytown. The firm charges its customers on an annual basis. It's cost and demand information are given below.
Quantity (Millions of subscribers) |
Price ($ per subscriber) |
Total Cost (million $) |
1 |
300 |
200 |
2 |
260 |
380 |
3 |
233.33 |
540 |
4 |
210 |
680 |
5 |
180 |
800 |
6 |
150 |
900 |
7 |
100 |
980 |
8 |
60 |
1040 |
a. What will the market price be if the government decides to regulate this natural monopoly by forcing them to sell the quantity and price where the market demand curve crosses the average cost?
b. How many units will be sold at what price if the monopoly is not regulated?
c. If the internet was regulated to provide the most allocatively efficient quantity of output, what output would it supply and what price would it charge? What subsidy would be necessary to ensure this efficient provision of internet services? (Remember: allocative efficiency requires that price equals marginal cost).