Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 26, Problem 8E
To determine
To state:
The market structure that funeral home industry fits in.
To establish:
The firm can handle more business than it has, using the
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Tomas is the general manager for a local automated car wash. The market he operates is perfectly competitive. Every car wash in the area is charging $7 for a car wash, which is also the marginal cost per wash. What will happen to Tomas’ profits if he changes his price to $8. Why? What about the price of $5? What is his profit-maximizing price?
Suppose Razor is the only pharmaceutical firm that sells a flu vaccine
in an economy. It faces the following demand, marginal revenue,
marginal cost and total cost functions.
P = 70 – Q
MR = 70 – 2Q
MC = 10 + Q
Demand:
Marginal revenue:
Marginal cost:
Total cost:
TC = 20 + 10Q +
2
Find the profit maximizing output and the price of the vaccine for the
firm. Show your steps.
а.
b.
Derive the average cost function. Show your workings.
Use the result of part a and b, find the profit level of the firm. Show
your workings.
с.
d.
Suppose the government is considering a price ceiling 10 percent
below the price derived in part a.
I.
Suggest one reason for the imposition of the price ceiling.
II. i)
With the price ceiling, what is the price for the vaccine?
ii)
Given the price in part i, how many vaccines will be
purchased in the vaccine market?
With the price ceiling, is there any shortage in the
vaccine market? Explain your answer.
iii)
The graph attached illustrates the Demand, Marginal Revenue, Marginal Costs, Average Total Costs and Average variable Cost curves for a firm in a perfectly competitive market.
What is the Optimum level of the output for the firm and what is the maximum price the firm can charge? How do you know?
At this price and output combination does the firm make economic profit of economic loss? Explain your answer.
Calculate the economic profit or loss? Show your calculations.
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