1. Natural Monopoly Given the inverse supply and inverse demand equation below, PD=-=- 3D QD + 40 Ps= -5QD+30 a. Find the equilibrium without any government intervention (Q* = 21.4, P* = 32.9) b. If the market is to be regulated, find the minimum subsidy to get an optimal equilibrium (562.5)
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- Monopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…Assume the following equations describe the conditions for a monopoly: Qd = 2,000 - 100P TC = 3,500 + 5q + .005q2 Where Qd is the quantity demanded, P is the commodity's price in dollars, TC is the firm's total cost in dollars and q is the quantity of output produced. Based upon these equations, answer the following questions: a. What is the firm's equation for total revenue expressed as a function of quantity? b. What is the firm's equation for marginal revenue expressed as a function of quantity? What is the firm's equation for marginal cost expressed as a function of quantity? c. What is the firm's profit maximizing quantity of output? d. What price will the firm charge for the commodity? e. What would be the socially optimal quantity of output? f. What price would regulators have to establish in order to have the firm produce the socially optimal quantity of output?Question 27 Consider a monopoly market in which the market demand curve is given by P = 240 – 2Q, the marginal revenue curve is MR = 240 – 4Q, the marginal cost curve is MC = 2Q, and there are zero fixed costs. Suppose the government intervenes and turns the market into a competitive market, and all the firms in the market have the same marginal cost curve as the monopolist, MC = 2Q, and zero fixed costs. How much is the resulting gain in total surplus? 300 800 400 600
- A market has a demand function given by the equation Qd = 180-2p, and a supply function given by the equation Qs =-15+p. The market is government-regulated with a price support per unit and production quotas.(NOTE: a production quota is a restriction on the quantity of the good that can be produced. Firms are not allowed to produce more than the quota) a). if the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses? Due to good weather, there is an increase in the demand for the good. the new demand equation is qd=190-2p. The government is trying to decide between two options: * Maintain the number of quotas and let the market adjust, or * Maintain the price support and increase the number of quotas (i). Which of the two options would be preferred by the producers? (ii) Which of the two options would be preferred by society on a whole?The figure on the right shows the demand schedule for a product produced by a single-price monopolist. Price ($) 10 987654 Quantity demanded A. 9; 10; -1 B. 40; 45; 5 C. 36; 41; 5 D. 5; 4; 1 E. 15; 15; 0 4 567892 10 Using the graph on the right, suppose this single-price monopolist is initially selling 4 units at $10 each and then reduces the price of the product to $9. By making this change, the firm is giving up revenue of Its and gaining revenue of marginal revenue is therefore (All figures are dollars.) Price ($) 141 13- 12- 11- 10- 9- 6- 5- 4- 3- 2- 1- -N 4 5 6 7 8 9 10 11 12 13 14 15 16 Quantity Q QThe figure to the right shows the market demand for electricity and the average total cost and marginal cost of producing electricity for a utility company. Suppose the utility company is a regulated natural monopoly. If government regulators want to achieve economic efficiency, then they will regulate a price of $ per kilowatt hour. (Enter a numeric response using a real number rounded to two decimal places) Now suppose instead that government regulators want to eat the lowest price such that the utility company will not suffer a loss so that it will continue to produce in the long run. If so, then i government regulators will set a price of $ per kilowatt hour. Price and cost (dollars per kilowatt hour) 0.52 048 044- 040- 0.36 0324 0.26 0.24 0.20 0.16 0.12 0.06 004 0.00+ ATC MC 4 8 12 16 20 24 28 32 36 40 44 48 Quantity of kilowatt hours (in billions)
- A market has a demand function given by theequation Qd = 180 - 2P, and a supply function isgiven by the equation Qs = -15 + P. The marketis government-regulated, with price support per unit and production quotas. (NOTE: A production quota restricts the quantity of the good that can be produced. Firms are not allowed to produce more than the quota)(a) If the price is $72 per unit, what production quota is needed to ensure no shortages or surpluses? (HINT: Sketch the supply and demand equations.)(b) Considering the price support and the quota, calculate(i) the consumer surplus,(in) the producer surplus,(In) deadweight loss,Due to good weather, there is an increase in the demand for the good. The new demand equationis Qd = 190 - 2P. The government is trying todecide between two options:• Maintain the number of quotas and let the market adjust, or• Maintain price support and increase the number of quotas.Crinnamathemarinenidanidan maintain Suppose the government decides to maintain the…Price Quantity Demanded $10 0 $9 10 $8 20 $7 30 $6 40 $5 50 $4 60 Reference: Ref 13-7 Table: Lunch (Table: Lunch) Use Table: Lunch. This table shows market demand for picnic lunches for people taking all-day rafting trips on the river. Joe has a firm providing this service, and his marginal cost and average cost for each lunch are a constant $4. If Joe is a monopolist, what is producer surplus in the long run? Select one: a. $180 b. $45 c. $360 d. $90The demand, marginal-revenue, average-total-cost, and marginal-cost curves are shown in the diagram below. Identify the monopoly price, the fair-return price, and the socially optimal price. Instructions: Use the tools provided 'Monopoly,' 'Fair,' and 'Optimal' to identify the monopoly price (Monopoly), the fair-return price (Fair), and the socially optimal price (Optimal). A Monopolist (Unregulated and Regulated) 50 Tools 40 Monopoly Fair 30 Optimal ATC MC 10 MR D 10 20 30 40 50 Quantity 20
- Suppose that the demand for good x is given by : P=100-8q Marginal cost of production is given by : P=10+2q MR is given by 100-16q What will the equilibrium quantity and price be in a competivite market? Calculate consumer, producer and total surplus. If we contrast this market to one in which good x is produced by a monopoly, what will be the quantity produced and the price each unit will be sold as? Calculate consumer, producer and total surplus. What will be the loss in total surplus due to a monopolist?If the inverse demand curve a monopoly faces is p = 100 - 2Q, MC is constant at 16, and the government imposes an $8 per unit specific tax on the monopoly, the deadweight loss due to both the monopoly and the tax is A) $441. B) $1764. C) $1332. D) $529.The inverse demand function of a monopolist is p(y) = 12 – y, and total costs is C(y)= y2 -20y +10. a. What is the profit-maximizing level of production? b. Suppose the government decides to tax the monopolist so that for each unit the monopolist sells it has to pay a tax of $2. What is the optimal output under this tax? c. Suppose the government now imposes a tax of 10% on the monopolist’s profits. What is the optimal output under this tax?