Assignment:
1) The short-run marginal cost of the Ohio Bag Company is 2Q. Price is $100. The company operates in a competitive industry. Currently, the company is producing 40 units per period. What is the optimal short-run output? Calculate the profits that Ohio Bag is losing through sub-optimal output.
2) The Suji Corporation has a monopoly in a particular chemical market. The inverse demand curve for the industry is P = 1,000 - 5Q. Marginal cost is 3Q. What is Suji's profit-maximizing output and price? Calculate the corresponding profits.
3) Will the monopolist ever choose to produce on the inelastic portion of its demand curve? Explain.
4) Candak Corporation produces professional quality digital cameras. The market fo professional digital cameras is monopolistically competitive. Assume that the inverse demand curve faced by Candak (given its competitors'prices) can be expressed as
P = 5,000 - 2Q, meaning it has a marginal revenue curve of MR = 5,000 - 4Q
Candak's total costs can be expressed as
TC = 20,000 + 3Q^2 (read Q squared), meaning it has a marginal cost of MC = 6Q
a) What price and quantity will Candak choose?
b) What characteristics of the professional quality digital camera market make it more monopolistically competitive than purely competitive?