Question

1) Suppose Demand for Apples (in bushels) is given by Q = 90-P and Supply is given by Q = P. The market for apples is dominated by a single, monopolistic firm "NYC Apples". What is NYC Apples profit at the monopoly price? 2) Suppose Demand for Apples (in bushels) is given by Q = 90-P and Supply is given by Q = P. The market for apples is dominated by a single, monopolistic firm "NYC Apples". How much more will consumers pay for Apples with NYC Apples being a monopoly compared to if it were a perfectly competitive market? 3)Suppose Demand for Apples (in bushels) is given by Q = 90-P and Supply is given by Q = P. The market for apples is dominated by a single, monopolistic firm "NYC Apples". Suppose you could regulate the market for Apples and impose a price ceiling. What price would maximize social welfare (combined producer and consumer surplus)

Answer 1

1) Demand is P = 90 - Q and MR = 90 - 2Q. Marginal cost is P = Q. Monopoly produces where MR = MC

90 - 2Q = Q

Q* = 30 and price = 90 - 30 - 60

Profit = TR - TC = (60 - 30)*30 = 900.

2) Perfect competition has P = MC

90 - Q = Q

Q = 45 and P = 45

Hence consumers are paying $15 more for Apples with NYC Apples being a monopoly compared to if it were a perfectly competitive market.

3) A price ceiling that would maximize social welfare will be price = marginal cost. At this price there is no producer surplus and consumer surplus is maximized. Hence P = MC = Q which results in

90 - Q = Q

Q = 45 and P = 45

The required price is $45 per bushel.