1. The demand curve in the market for slow-cooked Chicago ribs is Q=10005P. This market is a monopoly (one firm). a. Graph the demand curve. b. Fill in the table. c. At which price does revenue increase the most by raising the price by one dollar? Demonstrate your answer numerically, and justify the reasoning. d. Justify the bromide that a monopolist never prices on the inelastic part of demand. Provide the intuition. (Note: this one is not easy ... try to think it through.) e. Assume that the firm has zero costs, so that maximizing profit is identical to maximizing revenue. Find the optimal production point - the revenue maximizing level of output. Evaluate consumer surplus. f. Give the marginal revenue function. Find MR at the optimal production point. Note: The demand curve is linear. In this case, the slope of the MR curve is twice that of the demand curve and the intercept is the same as the demand curve. g. At The Taste of Chicago, the teeming masses are converted from ribs cooked with sauce to slowcooked ribs (these are rubbed with spices before cooking, and not basted at all during cooking ... let me know if you'd like the recipe). This doubles the demand for slow-cooked ribs. Redo the table above at the same prices. How does this increase in demand affect price, quantity and consumer surplus? h. The Chicago City Council, in its desire to promulgate health to the teeming masses, bans all slowcooked ribs. Calculate the social loss (loss in consumer surplus plus profits to the firm). (Note: in the real world (or should I say unreal world in this case of city politics?), the Chicago City Council just banned sales of foie gras.) i. Your firm sells imported "rib substitute" (made of soy bean, with "essence of pork") at $8 per unit; you sell 10,000 /month at this price. Your assistant calculates the elasticity of demand =3. Suppose you lower your price by $0.10. What is the change in revenue? 1. The demand curve in the market for slow-cooked Chicago ribs is Q=10005P. This market is a monopoly (one firm). a. Graph the demand curve. b. Fill in the table. c. At which price does revenue increase the most by raising the price by one dollar? Demonstrate your answer numerically, and justify the reasoning. d. Justify the bromide that a monopolist never prices on the inelastic part of demand. Provide the intuition. (Note: this one is not easy ... try to think it through.) e. Assume that the firm has zero costs, so that maximizing profit is identical to maximizing revenue. Find the optimal production point - the revenue maximizing level of output. Evaluate consumer surplus. f. Give the marginal revenue function. Find MR at the optimal production point. Note: The demand curve is linear. In this case, the slope of the MR curve is twice that of the demand curve and the intercept is the same as the demand curve. g. At The Taste of Chicago, the teeming masses are converted from ribs cooked with sauce to slowcooked ribs (these are rubbed with spices before cooking, and not basted at all during cooking ... let me know if you'd like the recipe). This doubles the demand for slow-cooked ribs. Redo the table above at the same prices. How does this increase in demand affect price, quantity and consumer surplus? h. The Chicago City Council, in its desire to promulgate health to the teeming masses, bans all slowcooked ribs. Calculate the social loss (loss in consumer surplus plus profits to the firm). (Note: in the real world (or should I say unreal world in this case of city politics?), the Chicago City Council just banned sales of foie gras.) i. Your firm sells imported "rib substitute" (made of soy bean, with "essence of pork") at $8 per unit; you sell 10,000 /month at this price. Your assistant calculates the elasticity of demand =3. Suppose you lower your price by $0.10. What is the change in revenue
