Assignment:
1. Suppose honey is produced in a beehive using bees and sugar. Each honey producer uses one beehive which she rents for $40/month. Producing q gallons of honey in one month requires spending 4q dollars bees, and 2q2 dollars on sugar.
a) What is the total cost of producing q units of honey for an individual honey producer in a given month?
b) In general, if the total cost of producing honey is a + bq + cq2, then the marginal cost of producing honey is b + 2cq. Assuming each honey producer operates as a price-taker, what is the monthly supply curve for an individual producer?
c) Let Q be the total market supply, and q is the supply of an individual firm. Therefore, q = Q/n where n is the total number of firms in the market. Suppose the demand for honey is given by Q = 548-4P. Also, suppose there are 60 honey producers in the market. What is the equilibrium price of honey?
d) How much profit does an individual producer make in a month?
e) How many firms will there be in long run equilibrium? (Remember, a firm will enter the market as long as it can make a positive profit, otherwise a firm will not enter the market.)
2. Suppose the demand for a product is given by Q = 200 - 5P.
a) Calculate the Price Elasticity of Demand when the price of the good is P = 8?
b) What is the Marginal Revenue of the firm when P = $8?
c) If the firm wants to increase their total revenue, should they increase or decrease the Price?
d) What price should the firm charge if it wants to maximize Total Revenue?
3. A monopolist faces a demand curve given by:
P = 200 - 10Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $60. There are no fixed costs of production.
A) What quantity should the monopolist produce in order to maximize profit?
B) What price should the monopolist charge in order to maximize profit?
C) How much profit will the monopolist make?
D) What is the deadweight loss created by this monopoly (hint: compare the monopoly outcome with the perfectly competitive outcome).
E) If the market were perfectly competitive, what would the price of the product be?