Name

Dayna's Doorstops, Inc. (DD) has a monopoly on the production and sale of doorstops.  The market demand curve for doorstops is given by

P = 90 - 2Q

The firm's total costs are given by

TC = 100 + 2Q

1. If DD wants to sell exactly 18 doorstops, what price should they charge?

2. What is the marginal revenue accruing to DD from the production and sale of the 18th doorstop?

3. What is DD's total cost from producing 18 doorstops?

4. What is DD's average cost for production of 18 doorstops?

5. What is the marginal cost of the 18th doorstop?

6. As a monopolist what are the profit maximizing price and quantity for DD? Price: Quantity:

7. What is DD's profit at the price and quantity found in the previous question?

8. What is consumer surplus when DD chooses its profit maximizing price and quantity?

9. The Public Utilities Commission (PUC) has heard testimony from various consumer groups and economists and has determined that DD should be subject to price regulation.  The PUC's initial determination is that price should be set so that marginal benefit equals marginal cost.  What price should be set and what output will DD produce? Price Quantity 

10. What profit is earned by DD at the price and quantity reported in question 9?

11. Rethinking its position, the PUC decides that the regulated price should be set so that Dayna's Doorstops earns zero economic profit.  What price should be set? What output will DD produce at that price?

12. You are invited to testify in the case before the PUC.  You advocate a "two part tarif", or two tiered price scheme, so that DD earns no economic profit and the level of output corresponds to the point where marginal benefit and marginal cost are equal.  What are the two prices that should be set for DD? High price Low price Low price

Hint: Using the equations for demand and cost, set up a table for price, quantity demanded, total revenue, marginal revenue, total cost, average cost, and marginal cost.  You can also find the answers using algebra.