For many decades, the Royal Mail had a legal monopoly in the U.K. Companies in the postal business have increasing returns to scale, then constant returns to scale, and then decreasing returns to scale. The Royal Mail’s minimum average cost is £2 at 100 million deliveries and its minimum marginal cost is £1 at 75 million deliveries. The demand for postage is zero at a price of £10, and demand is 300 million deliveries at a price of £0. Marginal revenue is zero at a price of £10 and 150 at a price of £0. Note: Unless otherwise stated, the numerical answers in this question do not need to be exact but should correspond to how you have drawn your graph. The government makes a law restricting the price of postage to £1. Show the effect of this policy in the short-run in a new, large graph. The graph should show the firm’s average cost, marginal cost, marginal revenue, and consumer demand. How much postage is bought? Show on your graph if the Royal Mail is in profit or loss, and by how much.
For many decades, the Royal Mail had a legal
postal business have increasing returns to scale, then constant returns to scale, and
then decreasing returns to scale. The Royal Mail’s minimum average cost is £2 at 100
million deliveries and its minimum marginal cost is £1 at 75 million deliveries.
The
deliveries at a price of £0. Marginal revenue is zero at a price of £10 and 150 at a
price of £0.
Note: Unless otherwise stated, the numerical answers in this question do not need to
be exact but should correspond to how you have drawn your graph.
The government makes a law restricting the price of postage to £1. Show the
effect of this policy in the short-run in a new, large graph. The graph should
show the firm’s average cost, marginal cost, marginal revenue, and consumer
demand. How much postage is bought? Show on your graph if the Royal Mail
is in profit or loss, and by how much.
Step by step
Solved in 2 steps with 2 images
