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Let's pretend the market for beer in Singapore is for all intents and purposes a monopoly. Tiger Beer (Asia Pacific Breweries technically) has an...
Let's pretend the market for beer in Singapore is for all intents and purposes a monopoly. Tiger Beer (Asia Pacific Breweries technically) has an overwhelming market share. The demand for Tiger Beer in Singapore for each year is given by:
Q = 250 - 5P
Tiger Beer has a single plant that it built for 100 million dollars in 2010. Each year it has a loan repayment of 6 million to pay off the loan it took out to finance the plant. The plant itself is fairly specialized and has zero scrap value, but it has some equipment that is worth 10 million if the plant is closed and sold off. Each year Tiger Beer enters into a bulk electricity and water contracts for which they pay 2 million upfront for all the electricity and water they want. Their marginal cost, which is mostly labor, maintenance and ingredients (Barley, Hops and Yeast) is 2 per unit.
(a) Before the beginning of each production year, what parts of the firm's fixed costs are sunk?
(b) How does your answer to (a) change if we are in the middle of a production year?
(c) Draw a graph of the marginal cost curve.
(d) Derive the marginal revenue function for Tiger Beer.
(e) Draw a diagram with Price on the vertical axis and Quantity on the horizontal axis that shows the Demand curve, Marginal Revenue curve and Marginal Cost curve.
(f) Derive the optimal price and quantity for Tiger Beer.
(g) On the diagram you drew in part (e) indicate the optimal price and quantity?
