What price (in dollars) will BRT charge for its tires in order to maximize profi
ID: 1202417 • Letter: W
Question
What price (in dollars) will BRT charge for its tires in order to maximize profit?
What is the profit-maximizing level of output for BRT (in millions)?
What is the amount of profit or loss (in millions of dollars) that BRT earns?
What, approximately, is the welfare loss (in millions of dollars) that results from BRT being the sole provider of tires?
in your town are controlled by Burn- Rubber (BRT), a monopoly fim Suppose that tire sales in your town are controlled by Burn-Rubber (BRT), a monopoly firm whose cost and revenue structure are shown in this figure. MC ATC 60 40 35 MR 12 Quantity of Tires (in millions)Explanation / Answer
Answer 1:
To maximize profits, BRT will charge price on the demand curve corresponding to the point where MR = MC which is the equilibrium condition. Thus, he will charge $60.
Answer 2:
It is the output corresponding to the point where MR = MC. Thus, he will produce 8 units,
Answer 3:
Profit = (Price - Average Total Cost) * Quantity
= (60 - 40 ) * 8 = 20 * 8 = $160
Answer 4:
Deadweight loss = Area of triangle bac = 1/2 * (60 - 35) * (12 - 8) = 1/2 * 25 * 4 = $50
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