Question

SUBJECT ECON 202

1. Yangtze is a monopolist with the following long-run cost structure

            

Yangtze is a monopolist selling books with the following long-run cost structure

Cost Structure for books for Yangtze

Books	Total Costs	ATC	AFC	AVC	MC
0	10,000	-	-	-	-
1,000	13,000	13	10	3	3
2,000	16,000	8	5	3	3
3,000	19,000	6.33	3.33	3	3
4,000	22,000	5.50	2.50	3	3
5,000	25,000	5	2	3	3
6,000	28,000	4.67	1.67	3	3
7,000	31,000	4.43	1.43	3	3

                                                                                                                  

Demand for books for Yangtze

Price	Quantity	Total Revenue	Marginal Revenue
14	1,000
12	2,000
10	3,000
8	4,000
6	5,000
4	6,000
3	7,000

1. What will be Yangtze’s profit maximizing level of output? At what price will Yangtze price books?
2. Assume that Yangtze is considering offering a service Yangtze Prime for $24, which allows individuals to purchase as many books as they would like at $6/book. The company estimates that if they offer Yangtze Prime, they will sell 300 memberships at a price of $24, and those members will purchase a total of $5,000 books. (They conservatively estimate that sales from non-members will be zero.) If the company’s estimates are correct: Should they offer Yangtze prime? What will their profit be if they offer the service?

Answer 1

a- firm will maximizes its profit at the quantity where marginal revenue is equal to marginal cost.

B- total revenue is derived by multiplying price with quantity and total cost is given in the table at 5000 unit.