Question

Grace is the owner-operator of the only supplier of artificial turf (fake grass) in a small town. Market demand is given by Q = 12,000 – 100p and marginal revenue is given by MR = 120 -0.02Q. Quantity is measured in square yards and price is measured in dollars per square yard. Grace's cost structure includes the following: Total Cost: C = 250,000 + 200 Marginal Cost: MC = 20 Average Cost: AC 250,000 Q + 20 (a) Calculate the profit-maximizing level of output and price for Grace's firm. Q* = square yards p= $ per square yard (b) Calculate the Lerner Index for Grace's firm. Round your response to three decimal places nearest thousandth). Lerner Index = (c) Calculate the price elasticity of the residual demand curve at this equilibrium. Round your response to one decimal place (nearest tenth). Ed = (d) Calculate the economic profit earned by Grace's firm. Profit = $

Answer 1

12 000 – 100p 120 0.02Q MR= TC = 250 000 Market demand : Marginal revenue: Total Cost Marginal cost Average Cost + 200 MC = 20 AC 250 000 + 20 she will maximize As profit 120 Grace is a by equating monopolist MR with MC O. 02 Q = 2o TXT 5000 sq yards 0.02 Given demand .. 12 ooo 100 P >> P * 12 000 100 12ooo 5 000 70$ per sq.yard 100 b) Learner index Pж MC L elastaty ㅗ Ed P* 70 - 20 O. 714 7o © Ed = / elasticity of demand I Lerner index 0.714 1.4 d) economic profit (1) Q* [ p* - AC ] = 5000 [ 70 250 000 + 20 20) 5000 There is profit economic HELPS ② HOPE THIS