Group+4+Monopoly

=Group 4: 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.

Dev Pandya
 * **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: 13.3333px;">Revenue ** || ATC= TC/Q
 * <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 ||

Dev Pandya (1- 4)

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

Deher's Designer Shirt Company's fixed cost is 100 dollars.

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.) MR and MC intersect at a quantity of 6 shirts.

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.

MR and MC intersect at a quantity of 6 shirts. So the profit maximizing quantity is 6. At a quantity of 6 the demand price is 110 so the price it should charge for shirts is 110 dollars. The firms profit is 265 dollars (660 - 395 = 265).

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.

Monopolies are not efficient because of excess capacity. Excess capacity refers to the producer not producing as much as they should in a monopolistic market. This excess capacity causes the deadweight loss.

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

Yes, because government intervention will help get rid of the deadweight loss because eventually the market will find equilibrium.

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?

For Dreher to engage in perfect price discrimination, his company would have to produce 8 units. Taking the total cost into consideration, any more than 8 units would increase the revenue making it too expensive for the company to produce more units.

With perfect price discrimination, the firm separates the whole market into each individual consumer and charges them the price they are willing and able to pay. If successful, the firm can extract all consumer surplus that lies beneath the demand curve and turn it into extra producer revenue (or producer surplus).

Thus, the total profit

8 (units) x $95 = 760