Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 –...

Question

Consider a small, isolated town in which a
ewery faces the following inverse demand: P = 15 – 0.33Q.
The
ewery can produce beer at a constant marginal and average total cost of $1 per bottle.
a. Calculate the profit-maximizing price and quantity, as well as producer and consumer surplus and the
deadweight loss from market power.
. If it were possible to organize the townsfolk, how much would they be willing to pay the
ewery to
sell beer at a price equal to its marginal cost?
c. What is the minimum payment the
ewery would be willing to accept to sell beer at a price equal to
marginal cost?
d. Is there potentially a bargain that can be struck between the townsfolk and
ewery? What would the
deadweight loss be if such a bargain were struck?
Answe
(a) we know the marginal revenue is...

David · Accepted Answer

Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 – 0.33Q. 
The brewery can produce beer at a constant marginal and average total cost of $1 per bottle. 
a. Calculate the profit-maximizing price and quantity, as well as producer and consumer surplus and the 
deadweight loss from market power. 
b. If it were possible to organize the townsfolk, how much would they be willing to pay the brewery to 
sell beer at a price equal to its marginal cost? 
c. What is the minimum payment the brewery would be willing to accept to sell beer at a price equal to 
marginal cost? 
d. Is there potentially a bargain that can be struck between the townsfolk and brewery? What would the 
deadweight loss be if such a bargain were struck?

Consider a small, isolated town in which a brewery faces the following inverse demand: P = 15 – 0.33Q. The brewery can produce beer at a constant marginal and average total cost of $1 per bottle. a....

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