The market for gilders is initially competitive and the market demand is: P = 31
ID: 1233998 • Letter: T
Question
The market for gilders is initially competitive and the market demand is: P = 315 - 0.6QD . Thecombined marginal costs of the firms in the gilder industry are: MC = 9 + 0.3Q.
a. Draw the demand, and marginal cost curves. Calculate and show how much these firms will sell
and what they will charge.
b.Now Massey Corp. invents a new technology that allows her firm to produce gilders at a constant
marginal cost of $9. There are large fixed costs amounting to $20,000 to adopt and maintain (each
year) this new technology, but she is able to monopolize the market. Draw the situation for the
gilder market showing the demand Massey Corp. faces and its MR and MC cost curves.
c. How much will Massey Corp. produce and what price will they charge?
d. How much profit does Massey Corp. make?
Explanation / Answer
In a competitive market P=MC. So here 9+.3Q= 315-.6Q .9Q= 306 Q= 340 P= 111 In a monopoly a firm prices where MR=MC Revenue = PQ= 315Q- 0.6Q^2 Marginal Revenue= 315- 1.2Q So 315-1.2Q=9 1.2Q= 306 Q=255 P= 162 Massey's profit 255*162 -9*255 -20,000 19,015
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