Question

. The demand for mysterious good X in Lansing is Q = 12 ? P, where P is the price of good X per pound and Q is the quantity demanded in pounds. The marginal cost of producing the good is $2 per pound. There is no fixed cost of producing the good. There is only one firm, Alice, who can produce the good. Alice can perfectly price discriminate. Rather than naming the price for each quantity sold, Alice uses two-part tariff that names a per-unit price and a fixed-fee to maximize his profit. (a) What are the per-unit price and the fixed fee in his optimal two-part tariff? (b) How much is the consumer surplus? (c) How much is the producer surplus?

Answer #1

Demand: Q = 12 - P

Inverse demand: P = 12 - Q

Marginal cost = $2

(a) Under two-part tariff, Price equals Marginal cost and fixed fee equals consumer surplus.

12 - Q = 2

Q = 12 - 2 = 10

P = MC = $2

From inverse demand function we get, when Q = 0, P = $12 (Maximum willingness to pay)

Consumer surplus (CS) = Area between demand curve and price = (1/2) x $(12 - 2) x 10 = 5 x $10 = $50

Fixed fee = CS = $50

(b) As computed above, consumer surplus is $50.

(b) Producer surplus is the area between MC curve and market price. Since price and MC are equal, producer surplus is zero.

The demand for mysterious good X in Lansing is Q = 12 ? P, where
P is the price of good X per pound and Q is the quantity demanded
in pounds. The marginal cost of producing the good is $2 per pound.
There is no fixed cost of producing the good. There is only one
firm, Alice, who can produce the good. Alice cannot price
discriminate against any consumer. (a) What is the marginal revenue
curve? (b) What is...

The demand for a product is given by p = d ( q ) = − 0.8 q + 150
and the supply for the same product is given by p = s ( q ) = 5.2
q. For both functions, q is the quantity and p is
the price in dollars. Suppose the price is set artificially at $70
(which is below the equilibrium price).
a) Find the quantity supplied and the quantity demanded at this
price.
b)...

The aggregate demand for good X is Q = 20 minus P, and the
market price is P = $8. What is the maximum amount that consumers
are willing to pay for the quantity demanded at this price?

Suppose the market demand function is Q = 120 – 2P, and the
marginal cost (in dollars) of producing the product is MC = Q,
where P is the price of the product and Q is the quantity demanded
and/or supplied.
How much would be supplied by a competitive market? (Hint: In a
perfect competition, the profit maximization condition is
MR=P=MC)
Compute the consumer surplus and producer surplus. Show that
the economic surplus is maximized.

Suppose a firm has an estimated general demand function for good
X is given by:
Q = 200,000 -500P + 1.5M – 240Pr
Where P = price of good X, M is the average income of the
consumers who buy good X, and Pr is the price of a related good.
Suppose that the values of P, M and Pr are given by $200, $80,000,
and $100 respectively.
An increase in the price of good X by 5% will
Decrease...

Q: The domestic demand for salmon in the U.S. has an inverse
demand curve of p = 150 -3Q. The domestic supply of salmon has an
inverse supply curve of p = .50Q. The price is $ per pound of
salmon and Q is in millions of pounds of salmon. Assume that the
market for salmon is perfectly competitive in a global
marketplace.
a. Provide a graph of the domestic supply and demand for salmon
and then calculate and show...

Consider a publicly available technology of producing a good
that is characterized by the variable cost function VC(Q) =
1/2(Q^2) and fixed costs FC = 2 for a firm that operates the
technology. In the short run, fixed costs are unavoidable. In the
long run, fixed costs are avoidable and it is free for any firm
outside of the market to enter, should it want to. In the short
run, the set of firms in the market is fixed. The...

Suppose the marginal utilities from consuming good X and good Y
are MUx M U x = 20 and MUy M U y = 30, respectively. And prices of
good X and good Y are Px P x = $3 and Py P y = $4. Which of the
following statements is true?
Question 28 options:
The consumer could increase utility by giving up 1 unit of good
Y for 3/4 units of good X.
The consumer is receiving more...

A typical inhabitant of Satan City has a demand function for
electricity q(p) = 800 − 20p,
where p is the price (in cents) per kw-hour and q is the kw-hour
consumption per week. The electricity
is being provided by Toyo Electricity, at a total cost of c(q) =
100 + 10q cents per kw-hour.
a) Determine the price pm and the quantity qm that Toyo will
decide under uniform (linear)
monopoly pricing. Compute the corresponding consumer surplus and
prot...

Suppose the weekly demand for a certain good in thousands of
units, is given by the equation P = 35 - Q, and the weekly supply
curve of the good by the equation P = 15 + Q where P is the price
in dollars. Finally, suppose a per-unit tax of $6, to be collected
from sellers is imposed in this market. Complete the following
questions. Note: If necessary round your answers to two decimal
places.
a) Graph the weekly...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 25 minutes ago

asked 33 minutes ago

asked 42 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago