Q1. CirrosisHepato (CH) is a monopolist in the alcohol market selling a particular type of gin. The firm faces the demand curve: QD = 50 - (10/4)p Where Q is in millions of units. The firm has a constant marginal cost of $4 per bottle. The fixed cost of the firm is $20 million. a) In order to find the quantity that maximizes profit, CH needs to calculate total revenue as a function of how much it produces. Derive total revenue by calculating the inverse demand (p as a function of Q), and then multiply by Q. b) The Marginal Revenue curve is MR = 20 - 0.8Q. For those who know how to take the derivative of an equation, can you show how MR is the derivative of Total Revenue? For everyone, does the MR formula make intuitive sense compared to the inverse demand curve? c) Draw the demand curve, marginal revenue curve, and marginal cost curve. d) At what level of quantity is Total Revenue maximized for CirrosisHepato? What is the price charged at this production level? e) At what level of quantity is profit maximized for CH? What is the price charged at this production level? Is the quantity produced for profit maximization the same as the quantity produced for when total revenue is maximized? Intuitively explain why or why not. f) At the profit maximizing level of production, what is CH's profit? At the total revenue maximizing level of production, what is CH's profit? g) The government wants to reduce alcohol consumption, and imposes a tax on each bottle of gin that CH produces. On a new diagram, illustrate CH's new price and quantity. How does price, quantity and profit compare to your answer in part (f)? How does the answer relate to the portion of the demand curve on which the monopoly operates? h) Instead of a tax per bottle, suppose that the government takes a tax each year of $5 million regardless of how many bottles CH produces. How does this grant affect CirrosisHepato's price, quantity, and profits? Explain your answer. Q2. Assume that the market for chocolate cake (everyone loves chocolate cake!) is perfectly competitive and that the market demand for a chocolate cake is given by QD = 550 − 2P, while the market supply of chocolate cake slices is given by QS = 300 + 3P. a) What is the market equilibrium price for a slice of chocolate cake? b) Maribel wants to sell chocolate cake. She has a marginal cost curve of MC(q) = 20 + q, where q is the number of slices of chocolate cake produced by Maribel. What is her marginal revenue for each slice of cake? How many slices of chocolate cake will she make given the equilibrium price? c) Maribel’s fixed cost in order to set up the business is $150. Her variable costs are VC(q)= 20q+ (1)/(2) q2. Draw out Maribel’s Average Total Cost, Average Variable Cost and Marginal Cost curves. Does she make a profit given this market price? If so, how much profit does she make? If not, how much does she lose? d) If market demand changes and becomes QD’ = 575 − 3P, does Maribel make more or less chocolate cake? Why? How many slices does he make? What is the price elasticity of supply for Maribel when moving from the price in part a) to this new market price? What are his new profits? e) If Maribel’s Fixed Cost increases to $600, what happens to her profit at the new market demand level. Will she continue to make chocolate cake? Explain. f) Suppose Maribel’s Fixed Cost stays at $100 and market demand is at QD’. Muajjem, Moishe, Mildred and Minato see Maribel making so much money. They all have similar cost curves and also want to make chocolate cake. What will happen to the market supply curve? What will happen to the market price and Maribel’s profits? Could you solve these questions and provide explanations pretty please. Thanks!