Unit 9 [BU224 Assignment Template] Unit 9 Assignment: Monopolies Name: Melissa Mercado Course Number and Section: Unit 9 BU224 Microeconomics Date:9/5/21 Questions 1. The Gulf Sea Turtle Conservation...

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Unit 9 [BU224 Assignment Template] Unit 9 Assignment: Monopolies Name: Melissa Mercado Course Number and Section: Unit 9 BU224 Microeconomics Date:9/5/21 Questions 1. The Gulf Sea Turtle Conservation Group (GSTCG), a non–profit group of volunteers working to collect data on nesting sea turtles and to promote sea turtle conservation, is considering creating a video to educate people about sea turtle conservation. The cost of duplicating a video on a DVD and mailing the DVD is $5.56. In a GSTCG member meeting, the video plan was discussed. The first two columns of Table 1 below shows the expected demand for the DVD at different suggested donation levels, and they can act as a single-price monopolist if they choose to. The receipts will be used to fund GSTCG supplies for their data collection and conservation work. At the end of each sea turtle nesting season, any excess funds are donated by the GSTCG to a local non-profit sea turtle research and rehabilitation facility. a. Complete Table 1 by computing the Total Revenue, Marginal Revenue, Total Cost, and Profit columns, each rounded to two decimal places. The cost of duplicating a video on a DVD and mailing the DVD, the Marginal Cost, is $5.56. Table 1 Suggested Donation per DVD Request Anticipated Number of DVD Requests Total Revenue Marginal Revenue Total Cost Profit $19.00 0 $ 0 $15.00 2 $30 $15 $11.12 $18.88 $9.50 5 $47.50 $5.83 $27.80 $19.70 $7.75 9 $69.75 $5.56 $50.04 $19.71 $3.00 15 $45 $-4.12 $83.40 $-38.40 $0.00 24 $0 $-5 $133.44 $-133.44 b. The President wants the GSTCG to provide videos to generate the most possible donations (Total Revenue). What price is the President of the GSTCG favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers. The President of the GSTCG is favoring of 9 DVD at $7.75, that will give a total revenue of $69.75. The amount of people to receive DVD will be 9. c. The Education Outreach Committee wants the GSTCG to provide videos to the most possible number of people. What price is the Educational Outreach Committee favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers. The maximum number of DVD is 24 and the suggested donation would be $0, leaving GSTCG at a loss of $133.44. d. The Treasurer of the GSTCG wants the DVD program to be as efficient as possible so that the marginal revenue equals marginal cost. What price is the Treasurer favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers. The Treasurer is favoring the most efficient number of 9 DVDs given to people at the price of $7.75. At this point, the Marginal cost is equal to the Marginal revenue at $5.56.  e. The Fundraising Committee wants the DVD program to generate as much profit in donations as possible. What price is the Fundraising Committee favoring and how many people will receive the DVD if this becomes the price of the suggested donation? Explain your answers. The maximum profit the GSTCG can receive is $19.71 and 9 people will receive DVD at the price of $7.75. 2. Imagine an Island a short distance off the east coast of a country. This island is called Onus, and it has a population of about 500 residents. Their only way to the mainland is by the ONE ferry boat that runs between Onus and the mainland (the ferry operates as a monopoly). Similarly, a short distance off the west coast of the same country is another island, Yuri, with a similar population of about 500 residents. Yuri, however, is a tourist attraction. There are MANY ferry boats running between Yuri and the mainland (each ferry operating in this perfectly competitive market). Each Yuri ferry operator provides service to both the tourists and to the 500 west coast island residents. Using the information that you learned in Chapter 13 of the text, answer the following questions by comparing and contrasting the differences between the monopoly market in Onus and the perfectly competitive market in Yuri. a. Explain in detail what differences in demand that the monopoly ferry operator on the east coast island of Onus will experience compared to the demand that a single ferry operator will experience in the perfectly competitive west coast market of Yuri. A perfectly competitive market for a ferry boat operation located in Yuri faces a horizontal demand curve that is shown in the second graph below. Since the ferry operator is competing with many ferry boats in the area, the price of a ferry boat ride will stay at $20 since if the price increases, the demand for the ferry boat will decrease. On the island Onus, there is only one ferry boat which means it is a monopoly market and the demand curve is downward sloping. The one ferry boat company in Onus has the market power which allows the company to raise the market price and decrease the output. The example of the monopoly market is shown on the first graph below.  b. Both the Onus ferry operator in the monopoly market and each of the Yuri ferry operators in the perfectly competitive market will want to produce at the point that the marginal revenue is equal to the marginal cost. Explain in detail the two reasons that the monopoly’s marginal revenue will always be less than its price while the marginal revenue in the perfectly competitive market will always be equal to the market price. The marginal revenue on a monopoly market is found by the price effect and quantity effect. When the price for an existing customer is changing, the difference in price gives the price effect. The quantity effect is found by the change in the number of customers causes a difference in revenue. The marginal revenue is lower than the market price and lies below the demand curve because of the price effect. In a perfectly competitive market, the maximum profit is met when the marginal cost is equal to the market price. In a monopoly market, the maximum profit is met when the marginal cost equals the marginal revenue which means it is less than the market price. Monopoly can produce fewer goods while charging a higher price.  c. Explain in detail how the monopoly ferry operator will determine the quantity of ferry service that she will provide to the 500 residents of Onus. Also explain how that monopoly quantity will compare to the total quantity of ferry service available to the 500 residents of the perfectly competitive market of Yuri by ALL the Yuri ferry providers. The monopoly ferry operator will determine its price and quantity that maximize revenue by equaling marginal revenue with its marginal quantity. MR=MC In a perfectly competitive market, the total quantity will be at the equilibrium market which is a quantity of 75. d. Explain in detail how the monopoly ferry operator in Onus will determine the price she will charge the island residents for ferry service and how that price will differ from the price experienced by the island residents and tourists in the perfectly competitive market of Yuri. 3. Onus residents, in questions 2.a.–d. above, complain to their local politicians about the high prices. In an attempt to reduce the exorbitant price that the residents must pay for ferry service to and from the mainland, the local politicians convince the legislature to create a regulatory board which will impose a legal price ceiling on the Onus monopoly ferry operator. a. In this scenario, the regulatory board imposed a price ceiling on the Onus monopoly ferry operator that was calculated to be below the ferry operator’s lowest ATC, but well above its lowest AVC. Explain in significant detail, what will be the short run and long run impacts of such a price ceiling on the Onus monopoly ferry operator’s profits and continued ability to provide service to the inhabitants of the island of Onus. b. In this scenario, the regulatory board imposed a price ceiling on the Onus monopoly ferry operator that was calculated to be well above the ferry owner’s lowest AVC and equal to the ferry owner’s lowest ATC. Explain in significant detail, what will be the short run and long run impacts of such a price ceiling on the Onus monopoly ferry operator’s profits and continued ability to provide service to the inhabitants of the island of Onus. c. In this scenario, the regulatory board, imposed a price ceiling on the Onus ferry operator that was calculated to be well above the ferry owner’s lowest AVC and well above the ferry owner’s lowest ATC. Explain in significant detail, what will be the short run and long run impacts of such a price ceiling on the Onus monopoly ferry operator’s profits and continued ability to provide service to the inhabitants of the east coast island of Onus. ------------------------------- References: 2 of 13
Sep 05, 2021
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