Assume that you are in the business of building houses in United Kingdom. You have analyzed the market carefully, and you know that at a price of £120,000, you will sell 800 houses per year. In addition, you know that at any price above £120,000, no one will buy your houses because the government provides equal-quality houses to anyone who wants one at £120,000. You also know that for every £20,000 you lower your price, you will be able to sell an additional 200 units. For example, at a price of £100,000, you can sell 1,000 houses; at a price of £80,000, you can sell 1,200 houses; and so on. a. Sketch the demand curve that your firm faces. b. Sketch the effective marginal revenue curve that your firm faces. c. If the marginal cost of building a house is £100,000, how many will you build and what price will you charge? What if MC = £85,000?
Assume that you are in the business of building houses in United Kingdom. You have analyzed
the market carefully, and you know that at a price of £120,000, you will sell 800 houses per
year. In addition, you know that at any price above £120,000, no one will buy your houses
because the government provides equal-quality houses to anyone who wants one at £120,000.
You also know that for every £20,000 you lower your price, you will be able to sell an additional
200 units. For example, at a price of £100,000, you can sell 1,000 houses; at a price of £80,000,
you can sell 1,200 houses; and so on.
a. Sketch the demand curve that your firm faces.
b. Sketch the effective marginal revenue curve that your firm faces.
c. If the marginal cost of building a house is £100,000, how many will you build and what
price will you charge? What if MC = £85,000?
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