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.

Rahul Sunny answered 2 years ago

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