Question;Problem 1Joe Brown?s dairy operates in a perfectly competitive marketplace. Joe?s machinery costs $500 per day and is the only fixed input. His variable costs are comprised of the wages paid to the few workers he employs at the dairy and the grain he feeds to his dairy cows.The variable cost associated with each level of output is given in the accompanying table.Gallons of Milk Variable Cost0 -1000 $ 2,1002000 $ 2,2003000 $ 2,9004000 $ 3,6805000 $ 5,180a. Calculate the total cost, the marginal cost per unit, the average variable cost, and the average total cost, for each quantity of output.Gallonsof Milk FC VC TC MC AVC ATC0 $500 - - - -1000 500 $ 2,1002000 500 $ 2,2003000 500 $ 2,900 4000 500 $ 3,6805000 500 $ 5,180b. What is the break-even price?c. What is the shut-down price?d. Suppose that the price at which Joe can sell milk is $1.50 per gallon. In the short run, will Joe earn a profit?e. In the short run, should he produce or shut down?f. Now suppose that the price at which Joe can milk is $1.00 per gallon. In the short run, will Joe earn a profit?g. In the short run, should he produce or shut down?h. Finally, Suppose that the price at which Joe can sell milk is $0.75 per gallon. In the short run, will Joe earn a profit?i. In the short run, should he produce or shut down?Problem 2Suppose that Media Cable is a single-price monopolist in the market for cable in Anywhere, Iowa. Media has five potential customers: Morgan, Larry, Clyda, Janet, and Tom.Each of these customers are willing to purchase cable service, but only if the price is just equal to, or lower than, his or her willingness to pay. Morgan?s willingness to pay is $130, Larry?s, $100, Clyda?s, $80, Janet?s, $40, and Tom?s, $0.Media Cable?s marginal cost per cable package is $40. The demand schedule for cable service packages is shown in the accompanying table.Price of Cable Service Quantity of Cable Service Demanded160 0130 1100 280 340 40 5a. Calculate Media Cable?s total revenue and its marginal revenuePrice ofCable Service Qty of CableService demanded Total Revenue Marginal Revenue$160 0 -130 1 100 2 80 3 40 4 0 5 b. Explain why a monopolist, such as Media Cable, faces a downward-sloping demand curvec. Explain why the marginal revenue from an additional sale is less than the price of the serviced. Suppose Media Cable currently charges $80 for its service. If it lowered the price to $40, how large is the price effect?e. How large is the quantity effect?f. What is the profit maximizing quantity and price for Media Cable?
Paper#55457 | Written in 18-Jul-2015Price : $29