Group+3+Monopoly

=Group 3: 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: 13.3333px;">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 ||  || <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || <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 ||   ||   ||
 * <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 ||  || 8 || <span style="color: #000000; display: block; font-family: 'Times New Roman',serif; text-align: center;">95 ||   ||   ||

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

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.

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.

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

__**Tremaine Johns:**__



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

The fixed costs of production for Dreher's Designer Shirt Company 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.

The profit maximizing quantity is 6 shirts. The price for the shirts should be set at $110. The firms profit will be $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.

Because the company is a monopolist and is not currently using price discrimination, it is missing out on profit that could be made from consumers willing to pay more for their product. With price discrimination, the company would be able to maximize profit by charging varying prices to different consumers.

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

The government can not effectively regulate the company to eliminate the deadweight loss.