Question: Consider a small isolated town in which a brewery faces the following inverse demand: P Q = 1 5 0 . 3 3 . The
Consider a small isolated town in which a brewery faces the following inverse demand: P Q The brewery can produce beer at a constant marginal and average total cost of $ per bottle. a Calculate the profitmaximizing price and quantity, as well as producer and consumer surplus and the deadweight loss from market power. b If it were possible to organize the townsfolk, how much would they be willing to pay the brewery to sell beer at a price equal to its marginal cost? c What is the minimum payment the brewery would be willing to accept to sell beer at a price equal to marginal cost? d Is it possible for consumers and the brewery to strike a bargain that results in gains for both?
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