5. A monopoly produces songs and sell them in CDs. It has a constant marginal andaverage cost of $20. It faces two groups of potential customers: honest and dishonest.The honest customers' demand function for music CDs is Qh120Ph, and thedishonest customers' demand function is Qd= 120- Pd.(a) Given that the marginal cost is constant and equal to the average cost, does themonopoly incur any fixed cost? Explain.(b) Suppose that it is not possible for the dishonest customers to pirate the songs sothat both groups of customers are willing to buy the CDs from the monopoly. Thetotal demand of the two groups is Q = 240 – 2p.(i) What will be the monopoly's profit-maximizing output and price?(ii) What are the consumer surplus, producer surplus, total surplus, and dead-weight loss?(c) Suppose that the dishonest customers can now pirate the songs and are thus nolonger willing to buy the CDs from the monopoly.(i) What will be the monopoly's profit-maximizing output and price?(ii) The dishonest customers store the pirated songs (MP3 files) in USB drives.One USB drive is needed to store the songs contained in a CD. The price of aUSB drive is $20. The dishonest customers only care about the songs (not, e.g.,the original album booklet). Their demand function for music CDs then turninto their demand function for USB drives with songs (a USB drive with songsis considered a perfect substitute of a music CD produced by the monopoly).How many USB drives with songs will they have?(iii) How will the consumer surplus (of both honest and dishonest consumers), pro-ducer surplus, total surplus, and deadweight loss change when piracy occurs?(iv) From an efficiency point of view, should music piracy be tolerated or evenencouraged? Discuss.

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. A monopoly produces songs and sell them in CDs. It has a constant marginal and average cost of $20. It faces two groups of potential customers: honest and dishonest. The honest customers' demand function for music CDs is Qh dishonest customers' demand function is Qd = 120 – Pd. 120 – Ph, and the (a) Given that the marginal cost is constant and equal to the average cost, does the monopoly incur any fixed cost? Explain. (b) Suppose that it is not possible for the dishonest customers to pirate the songs so that both groups of customers are willing to buy the CDs from the monopoly. The total demand of the two groups is Q = 240 – 2p. %3D (i) What will be the monopoly's profit-maximizing output and price?

. A monopoly produces songs and sell them in CDs. It has a constant marginal and average cost of $20. It faces two groups of potential customers: honest and dishonest. The honest customers' demand function for music CDs is Qh dishonest customers' demand function is Qd = 120 – Pd. 120 – Ph, and the (a) Given that the marginal cost is constant and equal to the average cost, does the monopoly incur any fixed cost? Explain. (b) Suppose that it is not possible for the dishonest customers to pirate the songs so that both groups of customers are willing to buy the CDs from the monopoly. The total demand of the two groups is Q = 240 – 2p. %3D (i) What will be the monopoly's profit-maximizing output and price?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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