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Author Question: Land in the South can often be used to grow either tobacco or cotton. Suppose the price of tobacco ... (Read 123 times)

lunatika

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on: Jun 29, 2018
Land in the South can often be used to grow either tobacco or cotton. Suppose the price of tobacco increases. Explain how the market for cotton will be affected.
 
  What will be an ideal response?

Question 2

A monopolist has the demand and marginal cost schedules given in the above table. If the monopoly can perfectly price discriminate, what is the profit-maximizing level of output and price?
 
  What will be an ideal response?


chereeb

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Because of the higher price of tobacco, farmers will reduce the amount of cotton grown and grow more tobacco. Thus, the supply of cotton will fall. This will raise the equilibrium price of cotton and reduce the equilibrium quantity sold.

Answer to Question 2

As a perfectly price discriminating monopoly, the profit-maximizing level of output is 4 units and the price ranges from 22 to 16 for each unit.


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