1. The residents of Seltzer Springs consume bottles of mineral water according to the demand function D(P) = 50 – p, whe

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1 The Residents Of Seltzer Springs Consume Bottles Of Mineral Water According To The Demand Function D P 50 P Whe 1 (90.23 KiB) Viewed 69 times

1. The residents of Seltzer Springs consume bottles of mineral water according to the demand function D(P) = 50 – p, where D(P) is the demand per year for bottles of mineral water if the price per bottle is p. Perry Air is the only supplier of mineral water in the area and behaves as a profit-maximizing monopolist. In order to produce mineral water bottles, Perry Air must hire workers. Its production function is y=2N, where y is the number of bottles produced and N is the number of workers hired. Since there are a lot of other employers in Seltzer Springs, Perry Air must hire workers in a competitive labour market, where the wage per unit of labour (i.e. per worker) is set at w. (a) Solve for the number of workers hired by Perry Air, as a function of the wage w. (b) If w = $20, how many workers will Perry Air hire? How many bottles of mineral water will it produce? (c) At what price will Perry Air sell each bottle of mineral water? How much profit will the company make? (d) Suppose that the market wage in Seltzer Springs increases to w = $28. How does this affect Perry Air's decisions?