Question

In: Economics

B. MONOPOLY A corporation buys up all the individual one-person businesses and operates them as one...

B. MONOPOLY

A corporation buys up all the individual one-person businesses and operates them as one corporation. The individuals work for the corporation as employees. There is now one corporation (Washington Physical Therapy Company) providing this service to everyone in the metropolitan area.   Technology and the actual services do not change.

For the Corporation:

Fixed cost per day: $4,000 (this is 100 times $40)

Variable cost per day for the Company (travel, supplies, etc.) based on existing operations of all 100 employees:

$40 for the first 500 sessions in a day

                        $45 for the 600th   to 699th session in a day

                        $50 for the 700th to 799th session in a day

                        $60 for the 800th to 899th session in a day.

                        $70 for the 900 to 999th session in a day.

1. Complete the cost schedule for the Company

Blood draws in a day

100

200

300

400

500

600

700

800

900

Fixed cost

4000

Variable cost

4000

Total cost

9000

Average total cost

90.0

Marginal cost

40

2. On the Monopoly Graph at the end of this assignment, Graph the Marginal Cost (which is like a supply curve) and the Average Total Cost for the Company.

3. Graph the Demand Curve (Demand has not changed).

4. Determine the Total Revenue and the Marginal Revenue based on the Demand Schedule:

Price

Quantity Demanded

(blood draws)

Total Revenue

Marginal Revenue

(Change in Revenue/

Change in Quantity)

90

100

9000

70

80

200

16,000

70

300

60

400

50

500

40

600

30

700

20

800

10

900

4. Graph the Marginal Revenue (at the quantity midpoint). E.g. graph $70 at a quantity of 150

5. Determine the profit maximizing level of output

6. What price will the company charge?

7. What will be the profit per unit (one physical therapy session) and the total company profit per day?

8. How does the price and quantity compare with the price and quantity before the industry became a monopoly?

9. Can we expect these profits to persist over time? Why or why not?

10. What are the implications for society?

Solutions

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