Econ homework

Homework

Due: Sunday, 11/3 by 11:55pm

Instruction: The problem 1 is a perfect competition. The problem 2 is a single-price monopoly case. Please refer to chapter 12 and 13 for the characteristics of these two different markets.

1. Archibald’s Tattoos is a perfectly competitive firm. The figure below shows the firm’s marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (

AVC

). The horizontal axis represents the number of tattoos per day; the vertical axis represents the price and costs of a tattoo. Please answer the following questions.

AVC

a. What is the market price for a tattoo? (Hint: The market price is linked to the marginal revenue.)

b. What is Archibald’s profit-maximizing output? (Hint: the condition for maximizing profit is MR=MC, then you can find the profit-maximizing quantity.)

c. What is Archibald’s shut-down point? (Hint: when the market price is lower than the minimum average variable cost (AVC), the firm starts to incur economic losses. Therefore, the firm will have to shut down temporarily.)

2. Minnie’s Mineral Springs, a single-price monopoly, faces the situation illustrated in the figure below. The horizontal axis represents the bottles (units) demanded per day; the vertical axis represents the price and costs of a bottle. Please answer the following questions.

a. How many units will the single-price monopolist, Minnie’s Mineral Springs, produce? (Hint: the condition for maximizing profit is MR=MC, then you can find the profit-maximizing quantity.)

b. What price will the Minnie’s Mineral Springs set for its product? (Hint: the price set by the monopolist occurs when MR=MC)

c. What is the Minnie’s Mineral Springs’ total revenue? (Hint: by definition, total revenue is equal to profit-maximizing quantity multiplied by the corresponding market price.)

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