Perfect Competitive Market Case Study

Improved Essays
Register to read the introduction… Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost.
a. How much will the firm produce?
b. How much will it charge?
c. Can you determine its profit per day? (Hint: you can; state how much it is.)
d. Suppose a tax of $1,000 per day is imposed on the firm. How will this affect its price?
e. How would the $1,000 per day tax its output per day?
f. How would the $1,000 per day tax affect its profit per day?
g. Now suppose a tax of $100 per unit is imposed. How will this affect the firm’s price?
h. How would a $100 per unit tax affect the firm’s profit maximizing output per day?
i. How would the $100 per unit tax affect the firms profit per day?

Answer
a) How much will the firm produce?
i) Profit maximizing firm will always produce where marginal cost = marginal revenue (MC=MR) ii) A monopoly will face a MR curve with twice the slope of the demand curve. Therefore
MR = 500+ 2x
…show more content…
How will this affect its price?
i) Increase in tax reduces the output and raises the price. ii) P = $500 − 10Q iii) From (e) below, quantity is 15 iv) Therefore, P=500-(10x15) = $350

e) How would the $1,000 per day tax its output per day?
Tax of $1000 reduces profit to $3000 from $4000
If Q of 20 produces profit of $4000, then $3000 will be produced by; (20x3000)/4000 =15.
Therefore, output reduces to 15

f) How would the $1,000 per day tax affect its profit per day?
P=TR-TC
P= (15 x 350) - (100x15) = 5250-1500 = $3750
Reduction in profit is $(4,000-3750) = $250

g) Now suppose a tax of $100 per unit is imposed. How will this affect the firm’s price?
i) Tax of $100 reduces profit to $(4000-100) =$3900 ii) If quantity 20 produces profit of $4000, then $3900 is produced by (3900x20)/4000 = 19.5

h. How would a $100 per unit tax affect the firm’s profit maximizing output per day?
Tax of 100 per unit on 200 reduces profit to $(4000-2000)=2000
If quqntity of 20 producers profit of 4000$ then $2000is produced by (2000*20)/4000=10
There for P= 500-(10*10)

Related Documents

  • Decent Essays

    comfortable, and then inviting them to stop into the Shoppe. This strategy works the best on underclassmen. Many of the freshmen want to come into the store but are intimidated that it is run by mostly seniors. With new ideas, we can make our location and even bigger advantage than it already is for the One Stop DECA Shoppe.…

    • 235 Words
    • 1 Pages
    Decent Essays
  • Great Essays

    Task 10 Politically John Lewis and Selfridges can be effect by the change of pricing and legal requirements such as the pricing of taxes can rise and it would affect the business because it would mean that they would have to spend more money on their bills rather than towards the…

    • 2940 Words
    • 12 Pages
    Great Essays
  • Great Essays

    If the government set a price of $2.00 a slice, how many slices of pizza will be sold each day, according to Figure 6.2? a. none c. 200 b. 150 d. 250 ____ 19. A new office building has opened and the demand for pizza has increased. The new demand curve states that consumers will buy 200 slices at $2.50 each and 300 slices at $1.50 each. Based on Figure 6.2, if the slope of the curve has not changed, what is the new equilibrium price and quantity supplied?…

    • 3520 Words
    • 15 Pages
    Great Essays
  • Decent Essays

    Hrm/531 Final Exam

    • 540 Words
    • 3 Pages

    1. Write 0.27 as a percentage. Answer is _____ %. Do not put the percent symbol in your answer. Correct Answer: 27 2.…

    • 540 Words
    • 3 Pages
    Decent Essays
  • Improved Essays

    Haverwood Furniture, Inc. manufactures wood furniture that sells at medium to high price points relative to other manufactures. Haverwood products are sold at 1,000 retails locations in the United States. 2007 pre-tax profit was $3.7 million on $75 million in sales. The company’s forecast of a 4% increase in 2008 sales is in line with expectations for the furniture industry as a whole.…

    • 300 Words
    • 2 Pages
    Improved Essays
  • Improved Essays

    Balance Sheet Observation Pinnacle Entertainment INC. (PNK) a) What is the trend, in each company, in total revenues over the three years? Growth has been observed in revenue. It is increased from (2012) 1,002,836 to (2014) 2,210,543 which is 120% growth as compare to base year. Revenue is very sensitive for the survival of company but since growth rate is very high, it is sign that company will grow further in future. PNK need to maintain it through the period, any negative in growth can badly affect the reputation of PNK.…

    • 464 Words
    • 2 Pages
    Improved Essays
  • Improved Essays

    All other assumptions are unchanged. What is the new required price? 10. Start with the assumptions in problem 9. But now assume that the additional volume does not enable enough economies-of-scale to reduce the average cost per case as much as originally anticipated.…

    • 654 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Best Care Case Study

    • 485 Words
    • 2 Pages

    c.) Green Valleys total profit margin is the net income/revenue. Therefore the answer is 57,881/3,269,404 = 0.0177. This compared to Best Care of 0.0456 shows that their profit margin is not as high as Best Care. d.)…

    • 485 Words
    • 2 Pages
    Improved Essays
  • Improved Essays

    Fin 511 Week 1 Assignment

    • 634 Words
    • 3 Pages

    The total revenue is decreased though there is reduction in fare of train. If price cut decreases total revenue it is called inelastic demand. It is important to consider the price elasticity of the demand of the product along with selling price of the product which result maximization of total revenue. Since product price will determine the quantity demand and they affect the total revenue of the producer. Question 2 Trade means to buy and sell of products in the market.…

    • 634 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Finance Case Study

    • 870 Words
    • 4 Pages

    Please provide your interpretations of these items: 1. Purpose of a tax system and 2. Equity (Points : 25) Page 2 1. (TCO A, B)…

    • 870 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    xj Solving for pj (xj ) from equation (2) we get the inverse demand function pj (xj ) = L1 Y xj 1 max L1 Y rxj , and the problem can be rewritten as xj xj and the …rst order condition is [xj ] : 2 L1 Y xj 1 r = 0.…

    • 3012 Words
    • 13 Pages
    Improved Essays
  • Improved Essays

    1) Market based transfer prices Market based transfer prices occur where a perfectly competitive market exist for intermediate products which makes it optimal for both decision making and performance evaluation to set transfer prices at competitive market prices. A perfectly competitive market exist when products sold are all the same and no individual buyer or seller can affect market prices. Transfer prices are recorded at market prices therefore divisional performance is likely to represent the real economic contribution of the division to total company profits. If the supplying division did not exist, the intermediate products would have to be purchased on the outside market at the current market price. Alternatively, if the receiving…

    • 1551 Words
    • 7 Pages
    Improved Essays
  • Decent Essays

    Chicken Nuggets Case Study

    • 1052 Words
    • 5 Pages

    b. The following week, Nina and Braden are back at the restaurant again, but now the price of a serving of chicken nuggets is $4. By how much does his consumer surplus decrease compared to the previous week? At $4 she is getting an additional 2 servings which again according to the chart would then only be a surplus of 3 extra chicken nuggets. Which is a decrease of 3 nuggets.…

    • 1052 Words
    • 5 Pages
    Decent Essays
  • Brilliant Essays

    Now, assume that sufficient evidence exists to support the selling price of $95,000 for the assembly line system. However, there is some concern regarding the $12,000 charged for the installation services that ALI heard about from a prior customer. What type of analysis must be done related to the $12,000 price for installation services to decide whether it should be used to allocate revenue to the components in the sales agreement? Explain your answer. 4.…

    • 1851 Words
    • 8 Pages
    Brilliant Essays
  • Improved Essays

    Monopolies are generally considered to be a disadvantage. However, in some circumstances monopolies can have many advantages for consumer’s social welfare. Having a monopoly means being the only seller, leaving you with no competition. In a monopoly the seller controls the prices of the particular product and or service; they also make the prices.…

    • 733 Words
    • 3 Pages
    Improved Essays

Related Topics