Question

1. A monopolist sells to identical consumers, using a block pricing approach. That is P1 is charged for the first q^ units, and P2 for every unit thereafter. Each consumer has a demand curve q= 20-2p , and the cost function is c(q)=4q. This monopolist would maximise profits by setting (for a suitable value of q^):

2. Imagine a perfectly competitive industry that generates a negative externality. The inverse demand curve is p^d(Q)= A-Q and the inverse supply curve is P^s(Q)=mQ . Production results in a negative externality of D per unit of Q, or DQ in total. Assume that A equals 30, m equals 1, and D equals 10. Then the socially efficient level of output, Q , is:

Answer 1

Q1)

Q2)