Question

Check my work Suppose you have been tasked with regulating a single monopoly firm that sells 50-pound bags of concrete. The firm has fixed costs of $10 million per year and a variable cost of $1 per bag no matter how many bags are produced Instructions: Enter your answers as whole numbers. In part e, round your answer to 2 decimal places. a. If this firm kept on increasing its output level, would ATC per bag ever increase? Click to select) Is this a decreasing-cost industry? Click to select b. If you wished to regulate this monopoly by charging the socially optimal price, what price would you charge? per bag At that price, what would be the size of the firm's profit or loss? At that price, the firm's quals milion < Prev 8 of 16 !! Next >

Answer 1

Fixed cost - $ 10x106 Variable cost ber bag - $1 > marginal cost (MC) = $1. Letra grepresent the number of bugs

la Total cost (IC) to produce 'Z' bags - fixed cost + Total variable cost = 10X106 + 1xy = 10x100 + y a ATC Te ATC = 10x10 ty ATC - 10x106 + 1 10X

So from aboue equation it is clear that as y Coutput) increases ATC will ! decrease Hence if this firm kept on increasing its output level, ATC per bag mire never increase and this declining ATC implies decreasing cost industry. (b) At social optimum, Price = marginal cost. = P = mc >> P = $ 1) price, 7 At this Total revenue - - 1xy = $4 Total cost $(10x106 + y) Hence, profit - Total revenue - Total cost -=7 - 10X106-Y = - 10x10 -ve sign means loss Hence, at that price firm's loss equals 10 million.

(C) At, p=$2 . Y = 10x106 Total Revenue = Py = 2x10x106 = 20 X 106 Total cost = 10x 100 ty = 10X106 + 10x106 = 20x106 profit - Total Revenue - Total cost - = 20x106- 20x106 = $0 (Firm will earn neither profit por loss) d) p=82 y=20x106 Toteul Revenue - Py = 2 x 20x106= $ 40x106 Total lost = 10x106 +y = 10x106+ 20x105 = 30x106 Profit – Total Revenue - Total Cost = 40X106 – 30x106 = 10X106 = lo million :