Question

(6) Kinked Demand. Brooklyn Broadband, Inc., is a local provider of broadband access to the Internet in Brooklyn, New York. Brooklyn faces the following segmented demand and marginal revenue curves for its residential service: Over the range of 0 to 50(000) customers per month P1 = $15 . $0.05Q When output exceeds 50(000) customers per month P2 $22.50-$0.2Q The company's total and marginal cost functions are as follows TC $7.50+$1.50Q $0.025Q where P is price (in dollars), Q is output (in thousands), and TC is total cost (in thousands of dollars). A. Graph the demand, marginal revenue, and marginal cost curves.26 B. How would you describe the market structure of this industry? Explain why the MR2 OTR2/oQ $22.50 $0.40 MC OTC/aa $1.50a+$0.05Q demand curve takes the unique shape showed above. C. Calculate price, output, and profits at the profit-maximizing activity level.2 D. How much could marginal costs rise before the optimal price would increase? How much could they fall before the optimal price would decrease?29 (7) Carte Assume the Hand Tool Manufacturing Industry Trade Association recently published the following estimates of demand and supply relations for hammers. Op60,000-10,000P Qs 20,000P (Demand) (Supply) A. Calculate the perfectly competitive industry equilibrium price/output combination. Sketch the price/output solution and label all curves and values (e.g., P, MC, MR, and ATC.)30 B. Now assume that the industrial output is organized into a cartel. Calculate the industry price/output combination that will maximize profits for cartel members. (Hint: As a cartel, industry MR $6 $0.0002Q). Sketch the price/output solution and label all curves and values (e.g., P-10, MC, MR, & ATC). 31 C. Compare your answers to parts A and B. Calculate the price/output effects of the cartel D. Give the profit maximizing conditions for part "A" and part "B. E. What market structure and price/output model is used in part "B"?