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Monthly demand for ready-to-mix concrete in Springfield is () = 72,000 400, where is the quantity given in cubic yards and is the price in
Monthly demand for ready-to-mix concrete in Springfield is () = 72,000 400, where is the quantity given in cubic yards and is the price in dollars per cubic yard. Currently there is only one producer in this market, Acme, who is charging $135/cubic yard. The elasticity of demand for ready-to-mix cement at the current equilibrium point is 3. a) Assuming Acme has set its price so as to maximize its profit in this market, what must be Acme's marginal cost of production? Assume Acme's marginal cost found in (a) is constant i.e., Acme's marginal cost remains the same as it raises or reduces output (for a reasonable range of values of output, at least). Note: If you were not able to find this marginal cost in (a), just assume a plausible value for it (make sure you state that assumption explicitly in your answers) and proceed to (b). b) Now suppose Acme is not the sole producer, but instead has a 50% share of the market for ready-to-mix cement in Springfield. If Acme is producing 12,000 cubic yards a month and charging $120 per cubic yard, is it maximizing its profit? Why or why not
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