Download presentation
Presentation is loading. Please wait.
1
Mircoeconomics 2006 Question 1
2
There is one art museum on the island of Watsonia. The
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue There is one art museum on the island of Watsonia. The museum’s demand and cost curves are shown in the graph above. The museum currently relies on an admission charge for some of its funding. Its directors are debating about how to set the admission charge.
3
P5 Q2 a) Using the labeling of the graph above, identify the price
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue a) Using the labeling of the graph above, identify the price and quantity associated with the following objectives. i) The museum maximizes its profit. P5 Q2
4
P3 Q4 a) Using the labeling of the graph above, identify the price
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue a) Using the labeling of the graph above, identify the price and quantity associated with the following objectives. ii) The museum maximizes its total revenue P3 Q4
5
P4 Q3 a) Using the labeling of the graph above, identify the price
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue a) Using the labeling of the graph above, identify the price and quantity associated with the following objectives. The museum maximizes the sum of consumer and producer surplus. P4 Q3
6
P2 Q5 a) Using the labeling of the graph above, identify the price
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue a) Using the labeling of the graph above, identify the price and quantity associated with the following objectives. iv) The museum maximizes its attendance, as long as it breaks even. P2 Q5
7
MR is greater than zero; Q1 is left of the mid-point
PRICE/COST Elastic Marginal Cost P6 P5 Average Total Cost P4 P3 P2 Inelastic P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue When the attendance is Q1, is the demand price elastic, inelastic, or unit elastic? Explain. Demand is elastic at Q1. MR is greater than zero; Q1 is left of the mid-point or in the upper half of the demand.
8
Accounting profits are positive.
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Accounting profits are positive.
9
Economic profit is zero and opportunity costs exist.
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Economic profit is zero and opportunity costs exist.
10
Economic profit is zero and ATC includes opportunity costs.
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the price is set at P2. Assuming the existence of an opportunity cost, indicate whether the museum’s accounting profits would be positive, negative, or zero. Explain why. Or-- Economic profit is zero and ATC includes opportunity costs.
11
Q7 Assume that the government decides the museum should
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. Using the labeling in the graph, identify the museum’s attendance under that circumstance. Q7
12
Outcome is NOT allocatively efficient.
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. ii) Would the outcome be allocatively efficient? Explain. Outcome is NOT allocatively efficient.
13
MC > P or MSC > MSB is greater than
PRICE/COST Marginal Cost P6 P5 Average Total Cost P4 P3 P2 is greater than P1 Demand Q1 Q2 Q3 Q4 Q5 Q6 Q7 ATTENDANCE Marginal Revenue Assume that the government decides the museum should charge no admission and agrees to subsidize the museum for any losses. ii) Would the outcome be allocatively efficient? Explain. MC > P or MSC > MSB
Similar presentations
