dolution

Suppose you have been tasked with regulating a single monopoly form that sells 50-pound bags of concrete. The firm has a fixed cost of $30 million per year and a variable cost of $4 per bag no matter how many bags are produced.

• a. You find out that if you set the price at $5 per bag, consumers will demand 30 million bags. How big will be the size of the firm’s profit or loss?
• b. If consumers instead demand 40 million bags at a price of $5 per bag, what would be the firm’s profit or loss?
• c. Suppose that the demand is perfectly inelastic at 40 million bags, so that consumers demand 40 million bags irrespective of price. What price would you charge if you want the firm to earn only a fair rate of return? Assume as always that TC includes a normal profit.