dolution

dolution.

Ed Scahill has acquired a monopoly on the production of baseballs (don’t ask how) and faces the demand and cost situation shown in the following table.

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a. Fill in the remaining values in the table.

b. If Ed wants to maximize profit, what price should he charge, and how many baseballs should he sell? How much profit (or loss) will he make? Draw a graph to illustrate your answer. Your graph should be clearly labeled and should include Ed’s demand, ATC, AVC, AFC, MC, and MR curves, the price he is charging, the quantity he is producing, and the area representing his profit (or loss).

c. Suppose the government imposes a tax of $50,000  per week on baseball production. Now what price should Ed charge, how many baseballs should he sell, and what will his profit (or loss) be?

d. Suppose that the government raises the tax in part (c) to $70,000. Now what price should Ed charge, how many baseballs should he sell, and what will his profit (or loss) be? Will his decision on what price to charge and how much to produce be different in the short run than in the long run? Briefly explain.

dolution

 
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