Identify the market equilibrium if the industry operates

Reference no: EM132926995

(1) Sally sells seashells by the seashore. When Sally prices her shells at £7 each, she sells 5 shells every day.
When she prices her shells at £6, she sells 6.
a. What is Sally's total revenue when she chooses to sell 5 shells (by pricing at £7)?
b. What is Sally's total revenue when she chooses to sell 6 shells (by pricing at £6)?
c. What is the marginal revenue Sally receives from deciding to sell a 6th shell?
d. The 6th shell sells for a price of £6. Why is the marginal revenue from selling a 6th shell so much lower than £6?

(2) A monopolistic seller of designer handbags faces the following demand curve: P = 50 - 0.4Q. The seller can produce handbags for a constant marginal and average total cost of £10.
(A) Calculate the profit-maximizing price for this seller.
(B) Suppose the government levies a £4 tax per unit on sellers of handbags. Calculate how this tax will affect the price the monopolist charges its customers.
NB: Solving this requires the use of the following derivative rule: The derivate of the function Y = X2 with respect to X is 2X; (X2)' = 2X

(3) The graph below shows the Demand curve for an industry, DD, the associated Marginal Revenue, RR, and the Marginal Cost, MC, which is horizontal and hence equal to the Average Total Cost
• Identify the market equilibrium if the industry operates under perfect competition
• Identify the market equilibrium if the industry operates as a monopoly
• By comparing the consumer and producer surpluses under the two different market structures show that the monopoly is inefficient

Reference no: EM132926995

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