Economics question and answer

Section I

Elixir Spring produces a unique and highly prized miner- al water. The firm’s total fixed cost is $5,000 a day, and its marginal cost is zero. The table shows the demand schedule for Elixir water.

 

Question 1 (1 point)

On a graph, show the demand for Elixir water and Elixir Spring’s marginal revenue curve. What are Elixir’s profit-maximizing price, output, and economic profit?

 

Question 2 (1 point)

Compare Elixir’s profit maximizing price with the marginal cost of producing the profit-maximizing output. At the profit-maximizing price, is the demand for Elixir water inelastic or elastic?

 

Section II

Question 3 (1.5 points)

Which of the following items are sold by firms in monopolistic competition? Explain your selections.

1. Cable TV service
2. Athletic shoes
3. Soda
4. Toothbrushes

 

Question 4 (1.5 points)

Use figure below, which shows the demand curve, marginal revenue curve, and cost curves of Lite and Kool, Inc., a producer of running shoes in monopolistic competition

 

In the short run, what quantity does Lite and Kool produce, what price does it charge, and does it make an economic profit?