2. Suppose there is a monopolist sells good x with constant marginal cost c. Also,there are two consumers with money endowment m; (i=1,2) and utility functions:'u + zx = 'nUz = (3/2)x"² + m,m, = m, – px,a) Derive each individual's demand for good xb) Suppose now that the monopolist can only engage in indirect (2mnd degree)price discrimination and decides to offer take it or leave it contracts of theform (ri,X;), where r; is a lump-sum payment that entitles the consumer topurchase x; units of the good.i.Write down the 2 incentive compatibility constraints and the 2participation constraints that the solution needs to satisfyGiven the properties of the utility functions, which constraints arebinding?iii.ii.Formulate the monopolist's profit maximizing problem given youranswer to ii above and compute the optimal contracts that thismonopolist should offer.iv.What are the consumption levels for both consumers? Which level ofconsumption is efficient and why?With your solution, show that indeed the high demand consumerwould not prefer the low-demand package and that he realizes apositive surplus, whereas the low-demand consumer does not realize asurplus.Would the monopolist make a different profit if he used two two-parttariffs instead of two take it or leave it packages? Why?V.vi.

Second-degree price discrimination, also known as non-linear price discrimination, is a pricing…

2. Suppose there is a monopolist sells good x with constant marginal cost c. Also, there are two consumers with money endowment m; (i=1,2) and utility functions: 1/2 U₁ = x₁/² +m₁ U₂ = (3/2)x² + m₂ m₁ = m₁ - px,

2. Suppose there is a monopolist sells good x with constant marginal cost c. Also, there are two consumers with money endowment m; (i=1,2) and utility functions: 1/2 U₁ = x₁/² +m₁ U₂ = (3/2)x² + m₂ m₁ = m₁ - px,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Following information shows that a firm offering a good at different prices to groups of consumers with different levels of willingness to pay. Inverse Demand for movies: P1 = 20 – 4Q1 Inverse Demand for students: P2 = 10 – Q2 MC = 4Q LKR /ticket (a) What price and quantity and maximizes profits if the firm charges each market? (b) Demonstrate that charging different prices for the two groups results in higher profits than charging the same price for everyone. (c) Graph the demand curves, the marginal revenue curves, the marginal cost curve and highlight the equilibrium.
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QUESTION 7 A monopolist produces a good with a constant marginal cost of c = 10 and fixed cost of F = 1000. Demand for the product is given by D(p) = 90 - p. The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any losses of the company. Suppose the regulator's objective is to maximise the difference between total welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies St are BS where ß > 0. Which of the following statements is correct? O The unregulated monopoly price is 40 and price regulation is optimal for any B 4/5. O The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 2/5. O The unregulated monopoly price is 50 and price regulation is optimal for any B < 4/5. O The unregulated monopoly price is 40 and price regulation is optimal for any B≤ 2/5. O None of the above.
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Suppose the daily market demand for meat in a small town is given by QD = 5/p² 7 where QD is the quantity demanded (pounds of meat), and p is the price per pound of meat. Suppose this market is served by a profit-maximizing monopolist (that is, there is only one butcher in this town), and this seller obtains and the total quantity sold the meat at a marginal cost of $1.5 per pound. The price charged per pound of meat will be $ will be pounds per day. (Round your answers to the nearest four decimals if necessary.)
A monopolist faces a demand curve P = 64−2Q and MR = 64−4Q. His marginal cost is MC = 16. (a) Graph the three functions and compute the profit maximizing output and price. (b) Compute the efficient level of output (where MC=demand), and compute the DWL associated with producing the profit maximizing output rather than the efficient output. (c) Suppose the government gave the monopolist a subsidy of $4 per unit produced. The MC would be reduced accordingly to $12 from $16. Compute the profit maximizing output level and the deadweight loss associated with this new output. Explain intuitively why the DWL has changed.