Assume your city government has been contracting with a single garbage collectio

Question

Assume your city government has been contracting with a single garbage collection firm that has been granted an exclusive franchise or sole right to pick up trash within the entire city limits. The economist for the city has estimated the price residents are willing resident as shown in the following table: What are the fixed cost per month. Why? Determine the current number of collections residents received per month and the price charged for each collection (profit maximizing output and the profit maximizing price). What is the economic profit received from each resident by the firm?

Explanation / Answer

Fixed cost is 3.2, this is because fixed costs are costs that do not vary with output.

Profit maximizing output is where MC=MR.This happens at Q=3 and P=3.

Revenue maximizing output is at 5

Sales maximizing price is 1.8

Maximum revenue for this firm is 11.

Q P TC MC TR MR PROFIT 0 4.2 3.2 0 -3.2 1 3.8 4.2 1 3.8 3.8 -0.4 2 3.4 5.6 1.4 6.8 3 1.2 3 3 7.8 2.2 9 2.2 1.2 4 2.6 10.4 2.6 10.4 1.4 0 5 2.2 13.4 3 11 0.6 -2.4 6 1.8 16.8 3.4 10.8 -0.2 -6

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