Econ 1101

Assignment 4
Due: 2:30pm Friday November 13th in drop box at 6206 University Ave.

NOTE: Make sure to write your name, your student ID number, your professors name, and your section

number on your assignment. If you have worked as part of a group, make sure that all members of the group
have their names and ID numbers on the assignment. A group should have no more than three members.
Ned has been celebrating his success in being voted in as Treasurer in the last Student
Council election on campus. However, he is now under a deadline to prepare his financial
report for the next Student Council meeting. He must review the revenue and expense
statements for Razzle Dazzle - a student run business on campus producing
environmentally friendly t-shirts with original artwork. Ned is also an economics major
and now that he has studied Perfect Competition and Monopoly, he is curious about the
pricing and output outcomes for Razzle Dazzle.
The following table provides the market prices and corresponding quantities of t-shirts
demanded in this market as well as total costs of production for Razzle Dazzle.
Quantity Price

Total Costs

$13

$0

1,000

$12

$6,000

2,000

$11

$12,000

3,000

$10

$18,000

4,000

$9

$24,000

5,000

$8

$30,000

6,000

$7

$36,000

7,000

$6

$42,000

8,000

$5

$48,000

Total
Revenue

Marginal
Revenue

Marginal
Cost

a) Complete the table above, providing total revenue, marginal revenue and marginal
cost. (2 points)
b) Draw, by hand, a graph showing the demand, marginal revenue, and marginal cost
curves. (1 mark)
c) If Razzle operates as a non-price discriminating monopolist, what will be the profitmaximizing level of output and price per t-shirt for the firm? (2 points)

d) Assuming Razzle could operate as in c) above, what will be the level of profit in the
long-run? Briefly explain what would have to be true in order for profit to persist in
the long-run for Razzle Dazzle. (2 points)
e) Assuming Razzle is able to operate as a monopolist in this market and does not price
discriminate, what is the value of consumer surplus at the point of profit
maximization? Show your calculations. (2 points)
f) In addition to operating as a monopolist, assume Razzle is also able to perfectly pricediscriminate. What will be the level of output with perfect price discrimination? (1
point)
g) What is the total revenue and profit for the business if they perfectly pricediscriminate? (2 points)
h) If Razzle perfectly price-discriminates, what would be the price they would charge for
the 1,000th t-shirt and for the 3,000th t-Shirt? How likely is it that Razzle would be
able to perfectly price-discriminate? Briefly explain. (2 points)
i) Alternatively, if Razzle is broken up into many small firms that are forced to operate
as a perfectly competitive industry, what will be the profit maximizing quantity of tshirts produced and the price charged per unit by the firm in the long-run? (2 points)
j) If Razzle is a perfectly competitive firm, what is the value of consumer surplus? (2
points)
k) On your graph, from b) above, show the non-price discriminating monopoly price and
quantity and the price and quantity in a perfectly competitive industry. Indicate the
consumer surplus for the non-price discriminating monopoly and that for perfectly
competitive industry on the graph. (1 point)
l) Compare total economic surplus under perfect price discrimination to that under a
perfectly competitive industry. (1 point)