Problems & Applications (Ch 15) 8. Problems and Applications Q8 Henry Potter owns the only well in town that produces clean drinking water. He faces the following demand, marginal revenue, and marginal cost curves: : Demand: P=60-Q Marginal Revenue: MR = 60 - 2 Marginal Cost: MC=Q On the following graph, use the blue line (circle symbol) to graph Mr. Potter's demand curve. Then, use the black line (cross symbol) to graph his marginal revenue (MR) curve. Next, use the orange line (square symbol) to graph his marginal cost (MC) curve. Finally, use the grey point (star symbol) to indicate the profit-maximizing price and quantity. ? 80 70 O 80 Demand 50 --- 40 - + 30 --- 20 MR 10 Price (Dollars) 0 -10 -- MC -20 -30 -40 -50 Profit-Maximization -80 -70 -80 0 10 20 40 50 80 30 Quantity (Units) Problems & Applications (Ch 15) Price (DC -10 MC -20 -30 -40 -50 Profit-Maximization -60 -70 -80 0 10 20 40 50 60 30 Quantity (Units) The profit-maximizing quantity is units, and the profit-maximizing price is $ Mayor George Bailey, concerned about water consumers, is considering a price ceiling that is 10% below the monopoly price. At this new price, the quantity demanded would be units. the price. Therefore, the profit-maximizing Mr. Potter produce this At this quantity, the marginal cost would be amount. George's Uncle Billy says that a price ceiling is a bad idea because price ceilings cause shortages. True or False: A price ceiling that is 10% below the monopoly price would cause a shortage. O True O False George's friend Clarence, who is even more concerned about consumers, suggests a price ceiling 50% below the monopoly price. At this price, the quantity demanded would be units, and the quantity supplied would be units. True or False: A price ceiling 50% below the monopoly price would cause a shortage. O True O False Problems & Applications (Ch 15) Price (DC -10 MC -20 -30 -40 -50 Profit-Maximization - -80 -70 -80 0 10 20 40 50 60 30 Quantity (Units) The profit-maximizing quantity is units, and the profit-maximizing price is $ Mayor George Bailey, concerned about water consumers, is considering a price ceiling that is 10% below the monopoly price. At this new price, the quantity demanded would be units. At this quantity, the marginal cost would be the price. Therefore, the profit-maximizing Mr. Potter produce this amount. greater than George's Uncle Billy says that a price ceiling less than cause price ceilings cause shortages. True or False: A price ceiling that is 10% below the monopoly price would cause a shortage. O True O False George's friend Clarence, who is even more concerned about consumers, suggests a price ceiling 50% below the monopoly price. At this price, the quantity demanded would be units, and the quantity supplied would be units. . True or False: A price ceiling 50% below the monopoly price would cause a shortage. O True O False Problems & Applications (Ch 15) Price (DC -10 MC -20 -30 -40 -50 Profit-Maximization - -80 -70 -80 0 10 20 40 50 60 30 Quantity (Units) The profit-maximizing quantity is units, and the profit-maximizing price is $ Mayor George Bailey, concerned about water consumers, is considering a price ceiling that is 10% below the monopoly price. At this new price, the quantity demanded would be units. At this quantity, the marginal cost would be the price. Therefore, the profit-maximizing Mr. Potter produce this amount. would George's Uncle Billy says that a price ceiling is a bad idea because price ceilings cause shortages. would not True or False: A price ceiling that is 10% below the monopoly price would cause a shortage. O True O False George's friend Clarence, who is even more concerned about consumers, suggests a price ceiling 50% below the monopoly price. At this price, the quantity demanded would be units, and the quantity supplied would be units. . True or False: A price ceiling 50% below the monopoly price would cause a shortage. O True O False