Part A. Pablo is an artist who has a very unique style of painting. It is so uni
ID: 1143366 • Letter: P
Question
Part A. Pablo is an artist who has a very unique style of painting. It is so unique that no one can replicate his artwork and he can operate as a monopoly. Assume demand for his paintings is linear and that he sells his paintings to maximise profits.
Which of the following statements are true: (There could be more than one answer. I think b) is correct but I am unsure if a) is correct or not. please help)
The quantity of paintings Pablo produces needs to be such that price equals marginal cost.
Pablo is a price maker.
The price Pablo charges will be equal to his marginal revenue.
d) Pablo's demand curve is twice as steep as his marginal revenue curve
Part B: Maddie is deciding whether or not she should take up a new job in retail, or keep her current job as a babysitter. As a babysitter Maddie earns $158 per week whereas the retail job would enable her to earn $335 per week. Maddie gains an additional $37 per week benefit from working with children as she intends to become a child psychologist in the future.
What is Maddie’s weekly economic loss as a babysitter? Enter your answer as a positive value to the nearest whole number (with no decimal places, $ or – signs, spaces or commas).
a)The quantity of paintings Pablo produces needs to be such that price equals marginal cost.
b)Pablo is a price maker.
c)The price Pablo charges will be equal to his marginal revenue.
d) Pablo's demand curve is twice as steep as his marginal revenue curve
Part B: Maddie is deciding whether or not she should take up a new job in retail, or keep her current job as a babysitter. As a babysitter Maddie earns $158 per week whereas the retail job would enable her to earn $335 per week. Maddie gains an additional $37 per week benefit from working with children as she intends to become a child psychologist in the future.
What is Maddie’s weekly economic loss as a babysitter? Enter your answer as a positive value to the nearest whole number (with no decimal places, $ or – signs, spaces or commas).
Explanation / Answer
Ans:
1)
a) The quantity of paintings Pablo produces needs to be such that price equals marginal cost.
b) Pablo is a price maker.
A monopoly market is characterized by the profit maximizer and price maker.A monopoly will seek to maximize profits by producing output where MR = MC.
2)
Income of Maddie = $158 + $37
= $195 per week
Opportunity cost of working as a babysitter = $335 per week
Economic loss = Income - Opportunity cost
= $195 - $335
= -$140 per week
Hence the Maddie’s weekly economic loss as a babysitter = -$140 per week.