Question

A small school has 100 students. You have been commissioned school photographer.

1. You have been offered to photograph a model action shot for a salary of $100 on the same day as the school photos are scheduled. You can’t do both. What is the limited resource, and as what kind of cost do you consider the missed salary of this photoshoot?

2. Without calculating, do you think parents’ price elasticity of demand for photos of their children is generally speaking price-elastic or price-inelastic (or neither/both)? Give your reason.

3. Since you are the only commissioned school photographer, you are a monopolist for this job. Suppose that you want to charge a uniform price per copy (i.e. be a single-price monopolist). From experience, you know that parents’ demand for copies of each child’s photograph is as given in the table below. Your marginal cost is constant at $2.00 per copy.

Price ($/copy)	Quantity demanded per child
10	1
8	2
6	3
4	4
2	5
1	6

a. How much will you charge to maximise your profit? How many copies per child will you sell? Include the steps of your calculations.

b. What is your profit from this job? Show your calculations.

c. How much is the parents’ consumer surplus? Show your calculations.

need the answers immediately!

Answer 1

1. The resources that are limited are the photographer, photography skills and camera. The foregoing of the $100 salary for the photoshoot is the opportunity cost of the photographer i.e., the money that could have been earned or output generated had the resource been put to its next best use.

2. The price elasticity of demand is neither elastic nor inelastic because of the simple fact that photographs could be clicked at various occasions and by parents themselves. the photographs are neither a luxury for them to be elastic nor a neccesity for them to be inelastic and there is no shortages in demand or supply. They do have their sentimental value but dont have extreme situation elasticities . thus demand elasticity could be near the levels of unit elasticity.

3.

(a) the monopolist will charge the price and sell the quantities at which MARGINAL REVENUE=MARGINAL COST(MR=MC) i.e., at Q=3 copies and P=$6 which can be inferred from the above table construction with additional columns of TR, MR, MC and TC respectively which can be made with the information already given.

(b) Profit= (total revenue/child - total cost/child) number of children

= [(6*3) - 6] 100

Profit= $1200

(all the information is taken from the table we constructed in the beginning)

(c) for calculationg consumer surplus we will have to use a formula mentioned in the picture above, but firstly we need the inverse demand curve for the photographs which can be calculated from the table taking values of price and quantity and putting in equation: P= a+bQ where a and b are constants. P= 12 - 2Q ; eq Q=3 P=6

we multiply the consumer surplus of 1 parent with 100 parents to get the total consumer surplus of $900.