Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 24, Problem 13CQ
(a)
To determine
Total revenue, marginal revenue, fixed cost, and total cost and fill the table.
(b)
To determine
Maximizing profit by charging price of $55.
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Gouge-em Cable Company is the only cable television servicecompany licensed to operate in Backwater County. Most of itscosts are access fees and maintenance expenses. These fixed costs total $640,000 monthly. The marginal cost of addinganother subscriber to its system is constant at $2 per month.Gouge-em’s demand curve can be determined from the datain the accompanying table.
a. What price will Gouge-em charge for its cable services?What are its profits at this price?b. Now suppose the Backwater County Public UtilityCommission has the data and believes that cablesubscription rates in the county are too expensive and thatGouge-em’s profits are unfairly high. What regulated pricewill it set so that Gouge-em makes only a normal rate ofreturn on its investment?
1. The (inverse) demand curve for the services of
Oakland Pest Control Co. (OPCC) is given by
P= $1000 - 2Q, where P is in dollars, and Q is
residences/month.
The cost equation is given by C = 2000 + 30Q.
a. Sketch and label OPCC's demand and marginal
revenue curves, and determine the maximum revenue
it can make.
b. What are OPCC's profit-maximizing price and
output levels?
c. How much profit does OPCC make if it services
100 residences per month?
Consider the only internet service provider in a small town, which you can assume operates as a natural monopoly. The following graph shows the
demand curve for internet services per month, as well as the provider's marginal revenue (MR) curve, marginal cost (MC) curve, and average total
cost (ATC) curve.
PRICE (Dollars per subscription)
100
90
80
70
40
20
10
0
0
2
||
Pricing Mechanism
Profit Maximization
4
Complete the first row of the following table.
MR
8 10 12 14
QUANTITY (Thousands of subscriptions)
Marginal-Cost Pricing
Average-Cost Pricing
O True
Suppose the government has elected not to impose regulations on the industry, and so the firm faces no regulatory constraints in maximizing profits.
O False
16
ATC
-MC
Complete the third row of the previous table.
18 20
D
Short Run
Price
Quantity
(Subscriptions) (Dollars per subscription)
Suppose now that the government decides to require the monopolist to set its price equal to marginal cost.
Profit
Complete the second row of the…
Chapter 24 Solutions
Economics: Private and Public Choice (MindTap Course List)
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