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The following table shows the maximum amount of five potential car buyers who are willing to pay for each level of sales
The following table shows the maximum amount of five potential car buyers who are willing to pay for each level of sales. Suppose that the cars are being sold by a car dealer operating as a monopoly (perhaps because there are no other car dealers in the market).
| Maximum amount he or she would pay for the car buyer | |
| Buyer 1 | $45,000 |
| Buyer 2 | $40,000 |
| Buyer 3 | $35,000 |
| Buyer 4 | $30,000 |
| Buyer 5 | $25,000 |
a) If the price of the car is $35,000, the revenue will be $ _____.
b) If the marginal cost of each car is $15,000. The monopolistic car dealer will want to sell _____ cars and the price will be $ _____.
c) In a perfectly competitive market, the number of cars sold would be _____ cars.
Expert Solution
A: $105,000
When the price of a car is $35,000 three people will buy the car. This means total revenue is $35,000*3=$105,000
B:
There are five possible prices which are the reservation prices given. Below is the table for price, quantity, revenue, marginal revenue and total cost.
| Quantity | Price | Cost | Revenue | MR |
| 1 | $45,000 | $15,000 | $45,000 | $45,000 |
| 2 | $40,000 | $30,000 | $80,000 | $35,000 |
| 3 | $35,000 | $45,000 | $105,000 | $25,000 |
| 4 | $30,000 | $60,000 | $120,000 | $15,000 |
| 5 | $25,000 | $75,000 | $125,000 | $5,000 |
A firm will increase output until the last point where marginal revenue is at or above marginal cost. This occurs at an output level of 4 and profit will be $60,000. The monopolist will thus sell 4 cars at a price of $30,000.
C: 5
In a perfectly competitive market firms are price takers and earn zero-economic profit. Thus, the market price will be equal to marginal cost which is $15,000. At this price all the buyers will purchase the car.
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