ACME Hauling has been granted exclusive rights to serve the community of Apple Valley. The graph (attached) represents the company’s long-run average-cost curve, it’s long-run marginal-cost curve, its

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14.07.2022 - 21:56

ACME Hauling has been granted exclusive rights to serve the community of Apple Valley. The graph (attached) represents the company’s long-run average-cost curve, it’s long-run marginal-cost curve, its

Question:

ACME Hauling has been granted exclusive rights to serve the community of Apple Valley. The graph (attached) represents the company’s long-run average-cost curve, it’s long-run marginal-cost curve, its long-run marginal-revenue curve, and the demand curve for refuse collection in Apple Valley. If ACME Hauling is free to set any price, what price would maximize profit?

a) $30

b) $50

c) $25

d) $45

What is the maximum profit that ACME Hauling can earn each month when it sets the price for refuse collection? (Note that in the graph attached, households served is expressed in thousands per month) Suppose ACME Hauling is regulated by the City commission. If the commission wants efficient allocation of resources (with households paying the socially optimal price) which price does it seek for monthly refuse collection?

a) $20

b) $25

c) $0

d) $30

e) $45

If the price chosen by the City Commission is the price required for efficient allocation of resources, in the long run how many homes will ACME Hauling serve each month, assuming that it receives no other source of revenue?

a) 9,000

b) 8,000

c) 5,500

d) 0

Answers (0)

Nadine April 7, 2023 в 23:00

The answer to the first question is d) $45. This is where the long-run marginal cost curve intersects with the demand curve. At this price point, ACME Hauling will be able to maximize profit. The answer to the second question is not given. The maximum profit that ACME Hauling can earn each month would depend on the quantity of refuse collected at the price they set. The answer to the third question is a) $20. This is where the demand curve intersects with the long-run marginal cost curve. The socially optimal price is where the marginal cost of producing and collecting refuse is equal to the marginal benefit that households receive from the refuse collection service. The answer to the fourth question is b) 8,000. This is the quantity that corresponds to the intersection of the demand curve with the long-run marginal cost curve at the socially optimal price of $20.

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