Kaplan AB224 Unit 7 Assignment: Perfect Competition and The Supply Curve

Kaplan AB224 Unit 7 Assignment: Perfect Competition and The Supply Curve

Question

Unit 7 Assignment: Perfect Competition and
The Supply Curve

Name:

1.
Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s
machinery costs $500 per
day
and is the only fixed
input
. His variable costs are comprised of the wages paid to the few
workers he employs at the dairy and the grain he feeds to his dairy cows.

The variable cost associated with each level of output
is given in the accompanying table.































Gallons of Milk



Variable Cost



0






1000



$ 2,100



2000



$ 2,200



3000



$ 2,900



4000



$ 3,680



5000



$ 5,180


a.
Calculate the total cost,
the marginal cost per
unit
, the average
variable cost
, and the average total cost, for each quantity of output.


































































Gallons


of Milk



FC



VC



TC



MC



AVC



ATC



0



$500













1000



500



$ 2,100











2000



500



$ 2,200











3000



500



$ 2,900











4000



500



$ 3,680











5000



500



$ 5,180










b.
What is the break-even
price
?

c. What
is the shut-down price?

d.
Suppose that the price
at which Joe can sell milk is $1.50 pergallon. In the short run, will Joe earn a profit?

e.
In the short run, should he produce
or shut down?

f.
Now suppose that the price
at which Joe can milk is $1.00
per
gallon. In the short run, will Joe earn a profit?

g.
In the short run, should he produce
or shut down?

h.
Finally, Suppose that the price
at which Joe can sell milk is $0.75 pergallon. In the short run, will Joe earn a profit?

i.
In the short run, should he produce
or shut down?

Chapter 14 / MONOPOLY

2.

Suppose
that Media Cable is a single-price monopolist in the market for cable in
Anywhere, Iowa. Media has five potential customers: Morgan, Larry, Clyda,
Janet, and Tom.

Each
of these customers are willing to purchase cable service, but only if the price
is just equal to, or lower than, his or her willingness to pay. Morgan’s
willingness to pay is $130; Larry’s, $100; Clyda’s, $80; Janet’s, $40; and
Tom’s, $0.

Media
Cable’s marginal cost per
cable package is $40.
The demand schedule for cable service packages is
shown in the accompanying table.































Price of Cable Service



Quantity of Cable Service Demanded



160



0



130



1



100



2



80



3



40



4



0



5



  1. Calculate Media Cable’s total revenue and
    its marginal revenue













































Price of


Cable Service



Qty of Cable


Service demanded



Total Revenue



Marginal Revenue



$160



0







130



1







100



2







80



3







40



4







0



5






b.
Explain why a
monopolist, such as Media Cable, faces a downward-sloping demand curve

c.
Explain why the
marginal revenue from an additional sale is less than the price of the service

d. Suppose
Media Cable currently charges $80 for its service. If it lowered the price to $40, how large is
the price effect?

e.
How large is the quantity
effect
?

f.
What is the profit
maximizing
quantity and price for Media Cable?

———————

References:

Kaplan AB224 Unit 7 Assignment: Perfect Competition and The Supply Curve


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