Principles of Economics I (Fall 2012)
Homework #6
(Lecture 13-15, Due on Dec. 28, 2012, submitted out of class)
Note: All textbook problem numbers refer to “Problems and Application”part in corresponding chapter, the 6th Chine/U.S. edition of the textbook.
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For Chapter 15
1.Chapter 15, #5
5. Larry wants to ll as many drinks as possible without losing money, so he wants
to t quantity where price (demand) equals average total cost, which occurs at
quantity Q L and price P L in Figure 6. Curly wants to bring in as much revenue as
possible, which occurs where marginal revenue equals zero, at quantity Q C and
price P C. Moe wants to maximize profits, which occurs where marginal cost
equals marginal revenue, at quantity Q M and price P M.
Figure 6
2.Chapter 15, #6
6. a. Figure 7 shows the firm’s average-total-cost curve and marginal-cost curve.
Becau average total cost falls continuously as output ris, this firm is a
natural monopoly.
Figure 7
b. If price is equal to $0, each person would visit the muum 10 times (= 10 –
0). Figure 8 shows the value (consumer surplus) the resident would get.
Consumer surplus is equal to ½⨯ 10 ⨯ $10 = $50 minus the tax ($24) =
$26.
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Figure 8
c. The table below shows the total revenue and profit for the town at various
prices:
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A price of $4 would allow the town to break even.
d. At a price of $4, each consumer would earn consumer surplus equal to ½⨯ 6
⨯ 6 = $18. (See Figure 9.) Consumers would be wor off. The town would
gain revenue of $24 per person, but it would not offt the drop in consumer
surplus. Therefore, there would be a deadweight loss.
Figure 9
e. In the real world, it is unlikely that all residents have the same demand. Thus,
情人节送an admission price would push more of the cost on tho who would u the
muum.
3.Chapter 15, #10
10. a. The marginal revenue from lling to each type of consumer is shown in the
following tables:
To maximize profit, you should charge adults $7 and ll 300 tickets. You should
charge children $4 and ll 200 tickets. Total revenue will be $2,100 + $800 =
$2,900. Becau total cost is $2,000, profit will be $900.
b. If price discrimination were not allowed, you would want to t a price of $7
for the tickets. You would ll 300 tickets and profit would be $100.
c. The children who were willing to pay $4 but will not e the show now that
the price is $7 will be wor off. The producer is wor off becau profit is
lower. Total surplus is lower. There is no one that is better off.
d. In (a) total profit would be $400. In (b), there would be a $400 loss. There
would be no change in (c).
4.Chapter 15, #11
11 a. The monopolist would t marginal revenue equal to marginal cost and then plug
the profit-maximizing quantity into the demand curve:
10 – 2Q = 1 + Q
9 = 3Q
Q = 3
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P = 10 –Q = $7
Total revenue = P Q = ($7)(3) = $21
Total cost = 3 + 3 + 0.5(9) = $10.5
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Profit = $21 – $10.5 = $10.5
b. The firm becomes a price taker at a price of $6 and no longer has monopoly
power. The firm will export soccer balls becau the world price is greater than
the domestic price (in the abnce of monopoly power). As Figure 11 shows,
domestic production will ri to 5 soccer balls, domestic consumption will ri to
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4, and exports will be 1.
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Figure 11
c. The price actually falls even though Wickham will now export soccer balls. Once
trade begins, the firm no longer has monopoly power and must become a price
taker. However, the world price of $6 is greater than the competitive equilibrium
price ($5.50) so the country exports soccer balls.
d. Yes. The country would still export balls at a world price of $7. The firm is a
price taker and no longer is facing a downward-sloping demand curve. Thus, it is
now possible to ll more without reducing price.
5.Chapter 15, # 12