Question

Question 4 [22 marks]
Pinesboro Herald is the only local newspaper in the city of Pinesboro. The publisher faces the
demand schedule shown in the first table below and has the cost schedule shown in the second
table.
Price
(dollars per copy)
Quantity demanded
(copies per day)
0.40 500
0.50 400
0.60 300
0.70 200
0.80 100
0.90 0
Quantity produced
(copies per day)
Total cost
(dollars per day)
0 100
100 105
200 120
300 145
400 180
500 225
a) Calculate the marginal revenue schedule. In a figure, draw the demand curve and the
marginal revenue curve.
(5marks)
b) Calculate the publisher's marginal cost and average total cost schedules. In the same figure
that you drew the demand and marginal revenue curves, draw the marginal and the average total
cost curves. (5
marks)
c) What are the publisher's profit-maximizing output and price? What is the publisher's
economic profit per day? (4
marks)
d) At the price charged, is the demand for newspapers elastic or inelastic? Explain your answer.
(2 marks)
e) Does the publisher use resources efficiently? What is the deadweight loss? (4 marks)
f) Will the publisher try to price discriminate? Why or why not? (2 marks)

Answer 1