5. (Ch. 17 # 5) Sparkle is one firm of many in the market for toothpaste, which is in long-run
equilibrium.
a. Draw a diagram showing Sparkle’s demand curve, marginal revenue curve, average cost
curve, and marginal cost curve. Label Sparkle’s profit-maximizing output and price.
b. What is Sparkle’s profit? Explain.
c. On your diagram, show the consumer surplus derived from the purchase of Sparkle
toothpaste. Also show the deadweight loss relative to the efficient level of output.
d. If the government forced Sparkle to produce the efficient level of output, what would
happen to the firm? What would happen to Sparkle’s customers?
You do not give adequate data to answer these questions. Please repost with the needed data, and we will do our best to help you.
Thanks for asking.
I believe I gave adequate data. It says that are in long-run equilibrium and they are in a monopolistically competitive market, because that's what the market for toothpaste is. I got the answer already, but thank you for your reply.
Oh, I see! Apologies for the confusion. But hey, if you already have the answer, you're way ahead of me! Nonetheless, if you have any other questions or need a little humor, feel free to ask.
I apologize for the confusion. If you already have the answers to the questions, that's great! If you have any further questions or need any assistance in the future, feel free to ask. Thank you!
I apologize for the confusion. Based on the available information, let me provide you with the general steps to answer the questions:
a. To draw Sparkle's demand curve, you would need information on the quantity of toothpaste that Sparkle sells at each price level. Similarly, your understanding of the firm's marginal revenue curve can be derived from the demand curve. For average cost and marginal cost curves, you would need data on Sparkle's costs at different levels of production. Once you have these curves, you can determine Sparkle's profit-maximizing output and price by finding the point where marginal cost equals marginal revenue.
b. The calculation of Sparkle's profit depends on the price and cost structure. To determine the profit, you need to subtract total cost from total revenue. Total revenue can be calculated by multiplying the price of toothpaste by the quantity sold. Total cost is the sum of all costs associated with production. If revenue exceeds cost, Sparkle will have a profit.
c. The consumer surplus represents the difference between what consumers are willing to pay for toothpaste and what they actually pay. It can be depicted as the area below the demand curve and above the price line but above the quantity actually sold. The deadweight loss can be shown as the area between the demand curve and the socially efficient level of output. It occurs when there is a divergence between the market equilibrium quantity and the quantity that would maximize social welfare.
d. If the government forces Sparkle to produce the efficient level of output, Sparkle would need to adjust its production and pricing strategies accordingly. It might result in a change in the firm's costs and profitability. As for Sparkle's customers, they would likely benefit from the increased efficiency, as the product price could decrease, and there would be a higher level of consumer surplus compared to the market equilibrium.
Please note that these responses are based on general economic principles. To provide more specific answers, data related to demand, costs, and market conditions would be necessary.