Name Free Response Question 3 rized in the You are the manager of a natural mono
ID: 1119819 • Letter: N
Question
Name Free Response Question 3 rized in the You are the manager of a natural monopoly with declining average costs summa table below. Additionally your market research division has told your good can be summarized by the following price-quantity combinations given in the you that the demand for table below. Price Quantity Total Cost Average Cost $14.00 $9.00 $7.33 $6.50 $6.00 $5.67 $5.43 $5.25 $5.11 $5.00 $10 $9 $8 $7 $6 $14 $18 $22 $26 $30 $34 $38 $42 $46 50 3 $5 6 7 8 9 10 $4 $2 $1 a) Assume initially that your monopoly is unregulated. What is the profit-maximizing price and output quantity? b) Suppose a regulator comes in and forces you to institute average-cost pricing (i.e. forces you to price at the fair-return price). What will be the appropriate price and output quantity? Suppose the regulator instead forces you to institute marginal-cost pricing (Le. they force you to charge the price that would result in a perfectly competitive market). W will be the appropriate price and output in this instance? c)Explanation / Answer
Answer
MC of n the unit=(TC of n units -TC of p units )/(n-p)...............n>p
TR=P*Q
MR of n th unit=(TR of n units -TR of p units)/(n-p)...................n>p
Answer
a)
The unregulated monopoly produces at MR=MC
or
The firm produces at MR=MC or the closet lower MC
where
Q=4 and P=$7
b)
P=ATC
then
Q=5 and P=$6
c)
P=MC
then
Q=7 and P=$4
the firm produces as per the government given conditions and supply so the above quantity it produces as per the conditions.
Quantity Price TR MR TC MC 0 0 1 10 10 10 14 4 2 9 18 8 18 4 3 8 24 6 22 4 4 7 28 4 26 4 5 6 30 2 30 4 6 5 30 0 34 4 7 4 28 -2 38 4 8 3 24 -4 42 4 9 2 18 -6 46 4 10 1 10 -8 50 4Related Questions
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