Question

1. Suppose a monopolist faces an inverse demand function of P = 150 ? 2Q. The firm’s cost functions is 30Q.

(a) What is the firm’s marginal cost? Average cost? How about the firm’s marginal revenue?

(b) What would the firm charge if they were a single price monopolist?

(c) What is the consumer surplus, producer surplus, and dead weight loss.

(d) Suppose the monopolist is able to perfectly price descriminate, what are the consumer surplus, producer surplus, and dead weight loss?

(e) If all the consumers in the market are identical, is there any way the firm can capture the same producer surplus as the previous part?

Answer #1

Example 1:
Suppose a monopolist faces an inverse demand function as p = 94
– 2q. The firm’s total cost function is 1.5q2 + 45q +
100. The firm’s marginal revenue and cost functions are MR(q) = 90
– 4q and MC(q) = 3q + 45.
How many widgets must the firm sell so as to maximize its
profits?
At what price should the firm sell so as to maximize its
profits?
What will be the firm’s total profits?

A monopolist faces inverse demand p = 40 − 2q and has a marginal
cost of 20.
(a) [20 points] What output will the monopolist produce?
(b) [10 points] What are consumer surplus, monopoly profits, and
deadweight loss?
(c) [10 points] Suppose the monopolist’s costs rise to 90. What
are consumer surplus, monopoly profits, and deadweight loss
now?
Please help to explain part (c).

A monopolist faces an inverse demand curve P(Q)= 115-4Q and
cost curve of C(Q)=Q2-5Q+100.
Calculate industry output, price, consumer surplus, industry
profits, and producer surplus if this firm operated as a
competitive firm and sets price equal to marginal cost.
Calculate the dead weight loss sue to monopoly.

A monopoly is facing inverse demand given by P = 40−0.5Q and
marginal cost given by MC = 7+0.1Q. Illustrate these on the graph
and answer the questions below.
(a) If the monopolist is unable to price discriminate, what is
the profit-maximizing quantity? What is the price? What is consumer
surplus? Producer surplus? Deadweight loss?
(b) Suppose instead the monopolist is able to perfectly price
discriminate. How many units will be sold? What is consumer
surplus? Producer surplus? Deadweight loss?

Suppose the inverse demand for a product produced by a single
firm is given by P = 200 ? 5Q and that for this firm MC = 20 +
2Q.
a) ) If the firm cannot price-discriminate, what are the
profit-maximizing price and level of output?
b) If the firm cannot price-discriminate, what are the levels of
producer and consumer surplus in the market? What is the deadweight
loss? Both compute and illustrate each on a graph.
c) If the...

Assume that the inverse demand function for a good is P = 40 –
2Q. A monopolist retailer has exclusive rights to sell this good. A
monopolist manufacturer sells the good to the retailer at price R.
The retailer has an additional marginal cost equal to $2 per unit.
The manufacturer’s marginal cost is $4 per unit.
a. Assume that the two firms remain independent. Determine the
value of R charged by the manufacturer.
b. Now assume that the two...

Suppose there is a meat market that is serviced by a monopolist.
Consumer preferences are summarized by P=-55q+997. The monopolist
has the following marginal cost function MC(q)=150+39q. The optimal
quantity that the monopolist will supply the market is q=847/149
and the monopolist will set the price as p=101968/149.
Now suppose the market is supplied by perfectly competitive
firms with the same aggregate cost structure as the monopolist. The
optimal quantity the perfect competitive industry will output is
q=847/94 and the...

Suppose a monopolist faces the following demand curve: P = 750 –
Q.If the long run marginal cost of production is constant and equal
to $30.
a) What is the monopolist’s profit maximizing level of
output?
b) What price will the profit maximizing monopolist charge?
c) How much profit will the monopolist make if she maximizes her
profit?
d) What would be the value of consumer surplus if the market
were perfectly
competitive?
e) What is the value of the...

1. Suppose that a monopolist engages in first-degree price
discrimination. Which of the following statements is true?
a. Consumers receives all the economic surplus.
b. The economic surplus is equally distributed between the
consumers and the monopolist.
c. The monopolist receives all the economic surplus.
d. Total surplus is not maximised ( there is a deadweight
loss)
e. None of these.
2.
A monopolist has no fixed costs and a constant marginal cost
equal to $4 per unit.
Suppose that...

In a perfectly competitive market, the supply function is P= 1 +
2Q, and the demand function is P = 25 - Q. Hence, in this market,
consumer surplus is _____ and producer surplus is _____. If this
market was to become the monopoly of a single firm with a marginal
cost of production equal to 11, then the welfare loss would be
____.
a) 30; 60; 3
b) 32; 64; 1.5
c) 32; 64; 3
d) 62; 34; 6

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