Assume that you manage a firm that sells calculators. You want to sell calculators to both commercial users and home users, and so you have developed 2 types of calculators - fancy and basic calculators. Each customer type has the following valuations for each type of calculator:

If you have an 100 home users and 100 commercial users that at most will buy 1 calculator each, you will maximize total revenue by setting what price for the fancy calculator? (Write answer without the dollar sign.)

1. What is the Marginal Revenue at a quantity of 5?

2, What is the Marginal Cost at a quantity of 7?

3. Using the MR-MC rule, what is the profit maximizing quantity this firm should produce?

4. How much profit do they make at this quantity?

Suppose that in the market for coffee, the government decides to impose a tax on the consumption of coffee.

Illustrate the equilibrium market for coffee reflecting the new tax.

On your graph, label the new price that consumers pay as Pc

On your graph, label the new price that sellers receive as Ps

On your graph, shade in the area representing the tax revenue received by the government and label it (TR).

On your graph, shade in the area of consumer surplus and label it (CS).     

On your graph, shade in the area of producer surplus and label it (PS).       

On your graph, shade in the area of deadweight loss, if any and label it (DWL).

What does deadweight loss mean?

1. Suppose we have the following supply and demand curves. QD = 500 − 2PD QS = 100 + 2PS

a) Determine the competitive equilibrium for this market.

b) Suppose that we impose a per unit tax of $50 on this market. Determine the following: 1. The price that sellers receive. 2. The price that consumers pay. 3. The number of units sold given the tax.

c) What is the share of the burden borne by consumers? What is the portion of the tax borne by sellers? Think the incidence formula.

d} Determine if the following statement is either True or False: The value of dead weight loss is equal to one-half the amount of tax revenue that is collected.

1. Suppose demand takes the form P = 10 – 2Q and supply takes the form P = 2 + 2Q.
   1. Find the market equilibrium (2)

2. How much total revenue (i.e. P*Q) will the firm receive at this equilibrium? (2)

2. Suppose the government decides to impose a price floor on dairy products to prevent dairy farms from closing down. If the market for a case of milk takes the form of:

Demand: P = 100 – 10Q

Supply: P = 10Q

1. Find the original equilibrium (2)

2. Find the market equilibrium with a price floor of $60 per case. (2)

3. Illustrate this price floor on a graph (2)

Suppose, at a given point in time, Chez Rachael is a non-price discriminating monopolist selling ratatouille and is producing its profit-maximizing level of output. Suppose further that at this level of production, Rachael's average fixed cost of producing ratatouille is $2, her average total cost is $10, and her marginal cost is $12.

At her current level of production, what is…

a) Rachael’s average variable cost of producing ratatouille?

b) Rachael’s marginal revenue from selling ratatouille?

c) the price of ratatouille?

d) Rachael’s profit from selling ratatouille?

Will Rachael continue to produce ratatouille in the long run? Why or why not? Explain verbally.

Suppose there is a monopolist in the market for a specific video game facing a demand curve: P = 20 - 0.5Q. The monopolist marginal cost curve is MC = 4, its total variable costs are TVC = 4Q and it faces a total fixed costs equal TFC = $78.
Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places.

a) Graph the demand curve and marginal cost curve, then derive and graph the marginal revenue curve.

b) Calculate the equilibrium monopoly quantity and price.

c) What is the profit for the monopoly?

d) What is the consumer surplus?

41. A monopolist has a constant marginal and average cost of $10 and faces a demand curve of QD = 1000 – 10P.
Marginal revenue is given by MR = 100 – 1/5Q.
a. Calculate the monopolist’s profit-maximizing quantity, price, and profit.
b. Now suppose that the monopolist fears entry, but thinks that other firms could produce the product at a cost of $14
per unit (constant marginal and average cost) and that many firms could potentially enter. How could the monopolist
attempt to deter entry and what would the monopolist’s quantity and profit be now?
c. Should the monopolist try to deter entry by setting a limit price?