Suppose you discover a stream in northern Minnesota whose water has amazing powers for healing. You decide to sell bottles of the water. The market demand curve is linear and is given as follows: P = 30 - Q The marginal cost to produce this amazing water is $3 per bottle. a. In a competitive market, what price would this water sell for and how much would you sell? Show your calculations. P = _____, Q = ______ b. After taking this class, you realize that you have monopoly power in this market. To maximize your profits, what quantity would you sell and what would the price per bottle be? (Hint: what is marginal revenue for a monopolist?) Show your calculations. Pm = ____, Qm = ____ c. Now draw a graph to the right with price on the vertical axis and quantity on the horizontal axis and show the competitive market solution and the monopoly output and prices.
Suppose you discover a stream in northern Minnesota whose water has amazing powers for healing. You decide to sell bottles of the water. The market demand curve is linear and is given as follows:
P = 30 - Q
The marginal cost to produce this amazing water is $3 per bottle.
a.
In a competitive market, what price would this water sell for and how much would you sell? Show your calculations.
P = _____, Q = ______
b.
After taking this class, you realize that you have
Pm = ____, Qm = ____
c.
Now draw a graph to the right with price on the
vertical axis and quantity on the horizontal axis
and show the competitive market solution and
the monopoly output and prices.
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