The studio must pay Mr. Mars 12 million to make the CD in the marginal cost of printing the CD
Show this problem graphically by graphing The demand curve. MR, and MC, labeling everything relevant, including the equilibrium price and quantity. Show consumer and producer surplus. Extra credit parentheses one point H parentheses: also show the deadweight loss of monopoly and external in your demand curve down the X axis how much with the firm produce if it was owned by the government and trying to maximize economic efficiency make total surplus as big as possible
Homework Answers
The following table shows total revenue,marginal revenue,fixed cost,marginal cost,variable cost,total cost and profit of printing CDs at different price and quantity
| Price | Quantity (million) |
TR (Price*Quantity) Million |
Marginal Revenue (Million) |
Fixed Cost (Million) |
Marginal Cost (Million) |
Veriable Cost (Million) |
Total Cost (Million) FC+VC |
Profit/Loss (TR-TC) Million |
| 14 | 0 | 0 | - | 12 | - | 0 | 12 | -12 |
| 13 | 1 | 13 | 13 | 12 | 3 | 3 | 15 | -2 |
| 12 | 2 | 24 | 11 | 12 | 3 | 6 | 18 | 6 |
| 11 | 3 | 33 | 9 | 12 | 3 | 9 | 21 | 12 |
| 10 | 4 | 40 | 7 | 12 | 3 | 12 | 24 | 16 |
| 9 | 5 | 45 | 5 | 12 | 3 | 15 | 27 | 18 |
| 8 | 6 | 48 | 3 | 12 | 3 | 18 | 30 | 18 |
| 7 | 7 | 49 | 1 | 12 | 3 | 21 | 33 | 16 |
| 6 | 8 | 48 | -1 | 12 | 3 | 24 | 36 | 12 |
| 5 | 9 | 45 | -3 | 12 | 3 | 27 | 39 | 6 |
| 4 | 10 | 40 | -5 | 12 | 3 | 30 | 42 | -2 |
- At price $9 and $8 ,profit is maximisied and the firm will make $18million profit
Following graph shows the demand cure and marginal revenue of CDs
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The studio must pay Mr. Mars 12 million to make the CD in the marginal cost of printing the CD
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MR = 100 - 2q
MC = 4 + 2q
Under Perfect Competition
EQ Price = 68
EQ Quantity = 32
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PS = 1024
TW = 1536
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EQ Price = 76
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MC = 4 + 2q
Under Perfect Competition
EQ Price = 68
EQ Quantity = 32
CS = 512
PS = 1024
TW = 1536
Under Monopoly
EQ Quantity = 24
EQ Price = 76
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Calculate the Consumer Surplus, Producer Surplus and Welfare
levels under monopoly.
How much deadweight loss does the monopolist create?
What could the government do to regulate the monopolist?
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