Cost of cookies II Name Course Institution Lecture Cost of cookies II Perfect competition refers to an extreme market competition where many sellers sell identical products to equally many buyers. The average cost is for perfect competition where the marginal revenue is equal to the market price (Skeath Velenchik Nichols & Case 1992). Therefore one would maximize the profits by selling by maintaining output where the marginal cost is equal to the marginal revenue. From the last module’s calculation considering that fixed costs at $30 per day only 2 dozen cookies could be baked per hour. For three dozens it took one and half-hours and at a cost of $15 dollars. The variable cost for three dozens was $14.49 calculated from the labor and cost of ingredients. The average fixed cost was $30 per day irrespective of the number of cookies that were cooked. = MR=dTR/dQ=P=$5 Hence marginal revenue $5x 5 dozen = 25 For the costs set at $15 the quantity for maximizing profits is 4 dozens which sold at $4 per dozen would give a total revenue of $20. Comparing the results for the monopoly the quantity for maximizing profits is 6 dozens sold at $ 5 per dozen. The maximum profits realized from the monopolistic markets are $30 which is also the same case for profits. Overall monopolistic markets yield better profits than perfect competitive markets. References Azevedo E. M. & Gottlieb D. (2017). Perfect competition in markets with adverse selection. Econometrica 85(1) 67-105. Cattani G. Porac J. F. & Thomas H. (2017). Categories and competition. Strategic Management Journal 38(1) 64-92. McKenzie R. B. (2009). In Defense of Monopoly. Regulation 32 16.Skeath S. E. Velenchik A. D. Nichols L. M. & Case K. E. (1992). Consistent comparisons between monopoly and perfect competition. The Journal of Economic Education 23(3) 255-261. [...]
Refer back to the cost calculations from your Module 4 assignment (the original calculations with the $30 fixed costs). Your cookies are sold in a perfectly competitive market with a market price of $5 per dozen. Calculate the profit-maximizing quantity of dozens of cookies for your cookies. Calculate the level of profit earned at that level of production. Now repeat the previous steps but with the $15 fixed costs calculations. Compare the results. Now assume you have a monopoly with your cookies with the following demand curve: $10 per dozen for one dozen, $9 per dozen for two dozen, $8 per dozen for three dozen, $7 per dozen for four dozen, $6 per dozen for five dozen, $5 per dozen for six dozen, $4 per dozen for seven dozen, $3 per dozen for eight dozen, $2 per dozen for nine dozen, and $1 per dozen for ten dozen. Start with the costs calculated with the $30 fixed costs. Calculate the profit-maximizing quantity of dozens of cookies for your cookies. Calculate the level of profit earned at that level of production. Now repeat the previous steps but with the $15 fixed costs calculations. Compare the monopoly results. Bring all your results together. Compare the perfect competition and monopoly results.