The more perfectly a monopoly can price discriminate, the A) ...

[renzo156]

The more perfectly a monopoly can price discriminate, the
 
  A) smaller its output and the lower its profits.
  B) smaller its output and the greater its profits.
  C) larger its output and the lower its profits.
  D) larger its output and the greater its profits.

Question 2

Mr. Blowfish opened a seafood store in December. He borrowed 60,000 from a bank at an annual interest rate of 8 percent. He used the funds he borrowed to purchase 60,000 of capital equipment. Over the year, he rented a building for 50,000 a year.
 
  During the first year of operation, Blowfish paid 45,000 to his employees, 20,000 for utilities, and 25,000 for raw fish he bought from other firms. In December of the next year, the market value of his capital was 50,000. Blowfish's best alternative to running the seafood store is to work for a grocery store as a sales clerk for 20,000 a year. a) What is the economic depreciation of Blowfish's capital? b) What are Blowfish's total opportunity costs? c) What is Blowfish's economic profit?

[jointhecircus]

Answer to Question 1

D

Answer to Question 2

a) Economic depreciation is the change in the market value of capital over a given period. The market value of Blowfish's capital was 60,000 at the beginning of the period and 50,000 at the end. So the economic depreciation is 60,000 - 50,000 = 10,000.
b) Blowfish's costs are: the economic depreciation, 10,000; the forgone income, which is the 20,000 he could have earned working for a grocery store; the wages paid, 45,000; rent, 50,000; utilities, 20,000; interest paid, 4,800; and raw fish bought, 25,000. So Blowfish's total cost is 174,800.
c) Economic profit equals total revenue minus total opportunity costs. Blowfish's total revenue is 165,000 and his total opportunity cost is 174,800. So his economic profit is 165,000 - 174,800 = -9,800, which means that Blowfish incurred an economic loss of 9,800.