Draw a graph of the demand curve and Hot Air’s marginal revenue curve.

Hot Air Balloon Rides, a single-price monopoly

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Question

Hot Air Balloon Rides, a single-price monopoly, has the demand schedule shown in columns 1 and 2 of the table and the total cost schedule shown in columns 2 and 3 of the table:
Price (dollars per ride)
220
200
180
160
140
120
Quantity demanded (rides)
per month)
Total cost (dollars per month)
80
160
260
380
520
680
1. Construct Hot Air’s total revenue and margin- al revenue schedules.
2. Draw a graph of the demand curve and Hot Air’s marginal revenue curve.
3. Find Hot Air’s profit-maximizing output and price and calculate the firm’s economic profit.
4. If the government imposes a tax on Hot Air’s profit, how does its output and price change?
5. If instead of taxing Hot Air’s profit, the government imposes a sales tax on balloon rides of $30 a ride, what are the new profit-maximiz- ing quantity, price, and economic profit?

Hot Air Balloon Rides, a single-price monopoly

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