Question

Suppose a monopolistic utility firm faces a market demand featured by Q = 100 – P. It has a total cost function: TC = 2000 + 10Q. (You must show all steps of calculation. Without showing your work, you get zero mark for even correct answers.) If there is no regulation, what output level and price would be chosen by the firm? Calculate the level of output Q*, price P*, and the deadweight loss (DWL). If two-part pricing is used to achieve efficiency while avoiding subsidization, what would be the total access fee to charge all consumers and what would be the price per unit? Is the change from profit maximizing pricing (in part 1) to two-part pricing (in part 2) a Pareto improvement? How do you know?

Answer #1

1. Suppose a monopolist faces the demand for its good or service
equal to Q = 130 - P. The firm's total cost TC = Q2 +
10Q + 100 and its marginal cost MC = 2Q + 10. The firm's profit
maximizing output is
2. Suppose a monopolist faces the demand for its good or service
equal to Q = 130 - P. The firm's total cost TC = Q2 +
10Q + 100 and its marginal cost MC...

A resource firm faces the following demand function: P = 60 –
10Q. The marginal cost of extraction is $20. (MC = $20).
Using the Inverse Elasticity Pricing Rule, calculate the profit
maximizing output level and price.

A monopolistic firm produces goods in a market where the demand
function is P = 43 − 0.3Q and the corresponding total cost
function is TC=0.01Q^3-0.4Q^2+3Q
e) Calculate the price elasticity of demand at the profit
maximizing Q (use Q>0). Comment (elastic, inelastic or unit
elastic?) on the calculated price elasitity of demand. Is the good
is necssary or luxary?
f) What would happen to the revenue of the firm if price goes
down? [Use the vlaue of price...

A monopoly faces the following inverse demand function:
p(q)=100-2q, the marginal cost is $10 per unit.
What is the profit maximizing level of output, q*
What is the profit maximizing price
what is the socially optimal price
What is the socially optimal level of output?
What is the deadweight loss due to monopoly's profit maximizing
price?

Suppose that a dominant firm faces fringe competition with
capacity K=12 units, and market demand Q=2096-4P.
Suppose further that the dominant firm and fringe competition
are able to produce with total costs given by C(Q)=20Q.
Assume that the dominant firm and fringe competition are profit
maximizers.
a. The marginal cost of a unit of output for the dominant firm
is __________
b. The output of the fringe competition is ___________
units.
c. The profit-maximizing level of output for the dominant...

Consider a firm with the demand function P(Q)=(50-2Q), and the
total cost function TC(Q)=10,000+10Q. Find the profit maximizing
quantity. Calculate the profit maximizing price (or the market
price). Hint: MR(Q)=(50-4Q),

1. Suppose in a market, for the typical firm P = 20 - q - b(n -
1)q and TC = 2q, where P is the price of output q, b is a parameter
determining how sensitive a firm’s output price is to the output of
its (n - 1) competitors/rivals, where n is the number of firms in
the market, TC is the total cost of production, and
q=Q=industry/market output. a. Suppose n = 1 and this market was...

Suppose in a market, for the typical firm P = 20 - q - b(n - 1)q
and TC = 2q, where P is the price of output q, b is a parameter
determining how sensitive a firm’s output price is to the output of
its (n - 1) competitors/rivals, where n is the number of firms in
the market, TC is the total cost of production, and
q=Q=industry/market output. a. Suppose n = 1 and this market was
occupied...

Given the following information for a monopolistic
competitor:
Demand: P = 68 – 7(Q)
Marginal revenue: MR = 68 – 14(Q)
Marginal cost: MC = 2(Q) + 8
Average total cost at equilibrium is 22
1. At what output (Q) will this firm maximize
profit?
2. At what price (P) will this firm maximize
profit?
3. What is the total revenue (TR) earned at this output
level?
4. What is the total cost (TC) accrued at this
output?
5. What...

Suppose a price-taking firm faces a market price of P = $70 and
has a total cost function given by: TC = 269 + 2Q + Q2.(Q squared)
a. Algebraically derive the firm’s fixed cost, average cost and
marginal cost functions. b. What quantity will the firm produce? c.
Compute the revenues, costs, and profits associated with the
profit-maximizing quantity.

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