Question
In: Economics
Kalamazoo Competition-Free Concrete (KCC) is a local monopolist of ready-mix concrete. Its annual demand function is...
Kalamazoo Competition-Free Concrete (KCC) is a local monopolist
of ready-mix concrete. Its annual demand function is
Qd=40,000−400P,Q d=40,000−400P,
where P is the price, in dollars, of a cubic yard of
concrete and Q is the number of cubic yards sold per year.
Suppose that Kalamazoo's marginal cost is $20 per cubic yard and
its avoidable fixed cost is $100,000. Suppose the government wants
to regulate Kalamazoo Competition-Free Concrete.
Instructions: Round your answers to 2 decimal
places.
a. What price will maximize aggregate surplus in this market?
$ per cubic yard.
b. If the government must ensure that KCC does not lose money, what
is the second-best price that maximizes aggregate surplus, subject
to this constraint?
$ per cubic yard.
Solutions
Expert Solution
SOLUTION :
a) The price that will maximise aggregate surplus in the market is P = $20 per cubic yard.
b) The second best price that will maximise aggregate surplus so that KCC does not lose money is P = $23.26 per cubic yard.
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