scheules Price is a local monopoly. The table below describes the market demand
ID: 1122772 • Letter: S
Question
scheules Price is a local monopoly. The table below describes the market demand and total Quantity Total Marginal Total Cost Marginal Average Revenue Revenue(S/hour) Cost Total Cost 60 40 30 20 10 50 30 10 -10 30 50 70 20 20 20 20 20 50 35 30 27.5 26 90 90 80 110 130 a. (4 points) Fill in the table for total revenue, marginal revenue, marginal cost, and average nember to put marginal items in between units and round to one decimal place if b. (2 points) If Port City Tattoos is a single-price monopoly, what is the profit-maximizing quantity? What is the profit-maximizing price? Profit-maximizing quantity2tattoos per hour Profit-maximizing price =$- 40- per tattoo e. (I point) At the profit-maximizing quantity and price, how much profit will Port City Tattoos earn? Profit = S 80-70-40-35) x2 = 10 per hour d. (3 points) Instead of charging a single price, suppose that Port City Tattoos can perfectly price discriminate. Now what is the profit-maximizing quantity? What price will be charged for the first tattoo? What price will be charged for the second tattoo? Profit-maximizing quantity = Price of first tattoo = $ 50 Price of second tattoo = $ 40 tattoos per hour -Explanation / Answer
b). Consider the given problem, here the “Port city Tattoos” is a single price producer. So the producer will determine the profit maximizing output by the condition, “MR=MC”. As we can see that the “MC” for quantity is “20”. Now, the “MR” for 1st quantity is “50 > 20”, => it is profitable to increase production by 1 unit. Now, for 2nd unit, the MR=30 > 20, so it is profitable to increase production by 1 unit. Now for 3rd unit the MR=10 < MC=20, => it is not profitable to increase production further, => the optimum Q=2, P=40.
d). Now, assume that instead of charging single price the producer want to charge price under “perfect price discrimination”, => charging different price to different consumer. So here under perfect price discrimination the optimum output will be determined by, “P=MC” condition.
As we can see that the MC=20 for all quantity but for q=4, P=20, => here the optimum choice is Q=4. So for Q=1, P=50 and for Q=2, P=40.
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