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marginal cost pricing rule on Cascade Springs

Please answer #4 and #8 from attachment.


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4. A marginal cost pricing rule will limit the price to the marginal cost of producing the product. We have marginal costs given at 5 cents per unit, which gives us the supply curve under this government regulation. Marginal cost is the change in total cost divided by the change in quantity. For this problem, since marginal cost is constant, it is only necessary to see what quantity the demand curve would dictate at a price of 5 cents. This can be done algebraically:
Qd = 1000-10P
P = 5
Q = 1000-50=950

Economic profits at this point would be zero, since it is the same as a competitive market outcome. Consumer surplus at this point would be 1/2 (950) x ...

Solution Summary

Marginal price rule applications