Group+2+Monopoly

=Group 2: Monopoly=

Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information. Please fill in the table below and answer the following questions based on this information.


 * **COSTS ** |||||||| **REVENUES ** ||
 * **Quantity ****Produced ** || **Total Cost ****($) ** || **Marginal ****Cost ** || **Quantity ****Demanded ** || **Price ****($) ** || **Total ****Revenue ** || **Marginal ****<span style="color: #000000; font-family: 'Times New Roman','serif'; font-size: 13px;">Revenue ** ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">0 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">100 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">-- || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">0 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">170 || 0 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">-- ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">1 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">140 || 40 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">1 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">160 || 160 || 160 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">184 || 44 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">2 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">150 || 300 || 140 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">3 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">230 || 46 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">3 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">140 || 420 || 120 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">4 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">280 || 50 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">4 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">130 || 520 || 100 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">5 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">335 || 55 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">5 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">120 || 600 || 80 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">6 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">395 || 60 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">6 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">110 || 660 || 60 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">7 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">475 || 80 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">7 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">100 || 700 || 40 ||
 * <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">8 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">575 || 100 || 8 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">95 || 760 || 60 ||

1. How much are Dreher's Designer Shirt Company's fixed costs of production?

<span style="font-family: 'Times New Roman',Times,serif;">The company's fixed cost of production is $100.

2. On a well annotated graph, illustrate Dreher’s average total costs, marginal costs, demand curve and marginal revenue curve (if you are unable to calculate this information from the table, please graph the cost, demand, and marginal revenue curves for a typical monopolist.)



3. What is the profit maximizing quantity that the firm should produce? What price should it charge for its shirts? What are the firm’s profits at this price and quantity combination? Illustrate your results on your graph.

<span style="font-family: 'Times New Roman',Times,serif;">The profit maximizing quantity would be 6 shirts, while the price charged for that many shirts should be $110. This would give them a $270 in profit.

file:///Users/jrsherman/Desktop/Monopoly%20Graph%202.pdf - "cannot upload graph" //

//4. Illustrate on your graph the deadweight loss associated with having a monopolist providing these shirt’s. Explain intuitively what is causing this deadweight loss.//

//<span style="font-family: 'Times New Roman',Times,serif;">The deadweight loss is because, Dreher's Designer Shirt Company has a monopoly on the market, thereby limiting the amount of competition in their industry and producing a surplus that is unlikely to be accounted for. Much like with taxation, since there is an average total cost representing the minimum optimum price and quantity of the market, it limits the company's bargaining power, thereby producing revenue that is neither returned to the costumer nor to the seller, but rather exists because of the shirt company's monopoly of the market. //

//file:///Users/jrsherman/Desktop/Monopoly%20Graph%203.pdf - <span style="color: #ff0000; font-family: 'Times New Roman',Times,serif;">"cannot upload graph"

5. Should or can the government step in to regulate Dreher’s Designer Shirt Company to eliminate this deadweight loss?

<span style="font-family: 'Times New Roman',Times,serif;">Yes the government can step in to eliminate deadweight loss.

6. If Dreher can engage in perfect price discrimination, how many units should they produce? What would be their total profits? What is the deadweight loss if Dreher can perfectly price discriminate?

<span style="font-family: 'Times New Roman',Times,serif;">If the company engages in perfect price discrimination, they will produce approximately 8 shirts at a price of $100. Their total profits would be $240, and have no deadweight loss, but would be lower than at the current optimum price and quantity in the market.