Question

Demand for 64GB USB memor sticks is Pd=22-.004Q, SanDisk Inc. has a cost function Cs(Qs)=$5*Qs. Kingston Technology's cost function is Ck (Qk)=$8*Qk. If SanDisk has a monopoly, what will be the deadweight loss from its ineffecient unproduction and overpricing?

Answer 1

P=22-0.004Q and Cost Function=5Q for SanDisk

SanDisk is Monopoly then Profit maximizing condition is MR=MC

R=(22-0.004Q)Q

MR=22-0.008Q

MC=5

17=0.008Q

Q=2125

P=22-0.004(2125)=13.5

Now Lets find CS

CS=1/2(22-13.5)(2125)=9031.25 in presence of Monopoly

In absence of Monopoly we have

P=MC

22-0.004Q=5

17=0.004Q

Q=4250

P=22-0.004(4250)=5

CS in absence of Monopoly=1/2(22-5)(4250)=36125

DeadWeight Loss=CS in absence of Monopoly-CS in presence of Monopoly

=36125-9031.25=27093.25