Suppose your boss buys out every single pizza store in the US. Your cost-demand conditions are as follows: profit maximizing quantity - 60 pizzas; price - 20$ per piece; per unit cost (total) - $12 per piece, per unit cost (variable) - $8.
a. Draw the graph, label all the curves and put all the numbers on the graph. Identify the market structure.
Your boss wants to know the answers to the following questions:
b. How much revenue is XYZ making? What are the costs? What is the profit?
Will the company stay open in the short run? Provide intuition for your answer.
c. Show on the graph and explain what will happen in the pizza market in the long run.
Please find the attached solution.
a) Given, profit maximizing quantity - 60 pizzas; price - 20$ per piece; per unit cost (total) - $12 per piece, per unit cost (variable) - $8. As the boss buys out every pizza store, he becomes the monopoly in the market. It is the nature of monopoly to earn profits in the short run. Price will be greater than the marginal cost. Equilibrium output is attained, where MC= MR & MC should cut MR ...
What are the costs and the profits are determined. Profit maximizing quantity are examined.