Supply and Demand Northern Granite company, a company in New England, installs granite counter tops

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Supply and Demand

Northern Granite company, a company in New England, installs
granite counter tops in homes When it first entered the business, the price
per foot for installing a granite counter top was $180 per square foot, and
Northern Granite was making substantial economic profits However, the market
price for installing kept falling as competitors entered the market increasing
supply Northern Granite’s economic profits disappeared when prices fell to $59
per square foot The owner of NG was searching for some way to increase his
profits, but he had no power to raise his price above his competitors, because
doing so would just about dry up all his business One day he was on holiday in
the foothills of the mountains in New Hampshire when he discovered a large hill
made of granite rock Most of the granite installed thus far, had come from far
away places such as China

He knew the “New Hampshire” granite would appeal
to consumers

To make a long story short, his firm gained rights to the
“New Hampshire granite” and as a result they maintained a monopoly
position in supplying New Hampshire granite counter tops, charging a price of
$199 per square foot His firm found that producing quantity demanded at this
price made its marginal revenue equal to its marginal cost of $125 per square
foot, and its total average cost was just $100 per square foot

Use a diagram to show NG’s demand curve, marginal revenue
curve and cost curves such that its profit maximum price is $199 per square
foot Indicate the area on the diagram that represents NG’s economic profits

The hill where NG is mining is very remote and only a few
people ever go there Still, the mining of the granite is changing the
landscape Would you consider this as an externality, and if you do, what would
you suggest be done about it? Explain

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