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Computation of profit maximizing level of output, the price, the maximum profits also the price elasticity at the optimal output.

In 1991, Brazil also Columbia united to form a coffee cartel also reduce coffee output. Suppose total costs for the cartel are:

TC = 12 + 5Q + Q2

Here Q is millions of pounds of coffee. The marketplace demand curve for coffee is:

P = 17 - Q

Here P is millions of dollars per million pounds. Suppose before the cartel was formed, output was 11 million pounds. In the Wall Street Journal a Columbian delegate to the cartel said which he believed which if the cartel reduced coffee output by 10%, the price would rise by 20%.

Compute your price elasticity of demand based on the Columbian Delegates belief.

Given this price elasticity-Illustrate what is the anticipated change in price as the result of an 10% decrease in output (remember monopolists also oligopolists control output not price; price is the result of output also demand)

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M916575

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