Calculate National Rail’s variable cost from selling the quantity you found in Part

Economics by Geoffrey

In a small European country there is a single provider of train service, National Rail. The demand
for train rides between two major cities and the associated marginal cost for National Rail are
shown in the graph below (in €).
1. Sketch in National Rail’s marginal revenue curve. Explain why, with a downward-sloping demand
curve, the marginal revenue curve is below the demand curve. [2]
2. What is the efficient quantity of train rides? (Note the units.) [1]

3. Explain how, as a monopolist, National Rail finds its profit-maximizing price and quantity. What is the profit-maximizing price and quantity? Calculate National Rail’s total revenue. (Note the units.) [2]

4. Calculate National Rail’s variable cost from selling the quantity you found in Part 3. Show your work. (Note the units.) [1]
5. Suppose National Rail’s fixed cost is €1,200,000. Calculate the company’s profit. [1]
6. Shade in the deadweight loss brought about by National Rail’s market power. Calculate the value of the deadweight loss. (Note the units.) [2]
7. If the national transit agency were to impose a price ceiling on National Rail in order to eliminate the deadweight loss, what would the ticket price be set at? [1