In a certain large city, hot dog vendors are perfectly competitive, and face a market price of $1.00 per hot dog. Each hot dog vendor has the following total cost schedule
a. Add a marginal cost column to the right of the
total cost column. (Hint: Don’t forget to divide by
the change in quantity when calculating MC.)
b. What is the profit-maximizing quantity of hot
dogs for the typical vendor, and what profit (loss)
will he earn (suffer)? Give your answer to the
nearest 25 hot dogs.
One day, Zeke, a typical vendor, figures out that if he
were the only seller in town, he would no longer have
to sell his hot dogs at the market price of $1.00.
Instead, he’d face the following demand schedule:
c. Add total revenue and marginal revenue columns
to the table above. (Hint: Once again, don’t forget
to divide by the change in quantity when calculating MR.)
d. As a monopolist with the cost schedule given in
the first table, how many hot dogs would Zeke
choose to sell each day? What price would he
charge?
e. A lobbyist has approached Zeke, proposing to
form a new organization called “Citizens to
Eliminate Chaos in Hot Dog Sales.” The organization will lobby the city council to grant Zeke the
only hot dog license in town, and it is guaranteed
to succeed. The only problem is, the lobbyist is
asking for a payment that amounts to $200 per
business day as long as Zeke stays in business.