3. (Monopolist) In a monopolist market, there is only one firm. In this regard, the monopolist is considered a "price maker," and sets price according to market demand. Suppose the demand curve for a monopolist's product is P(Q) = 100-Q and its total cost function is TC(Q) = 4Q2 where P is the price, Q is quantity, and TC is total cost. a. Using marginal analysis, how much of the good should the firm produce and what price should it charge? Call this QM and PM, respectively. b. What profit will this monopolist earn? c. Illustrate this monopolist's demand, marginal revenue, marginal cost, and average total cost functions on a graph. d. Shade in profit on your graph (hint: profit is the area of the rectangle: profit(Q) = (PM-ATC (QM))× Q³)

3. (Monopolist) In a monopolist market, there is only one firm. In this regard, the monopolist is considered a "price maker," and sets price according to market demand. Suppose the demand curve for a monopolist's product is P(Q) = 100-Q and its total cost function is TC(Q) = 4Q2 where P is the price, Q is quantity, and TC is total cost. a. Using marginal analysis, how much of the good should the firm produce and what price should it charge? Call this QM and PM, respectively. b. What profit will this monopolist earn? c. Illustrate this monopolist's demand, marginal revenue, marginal cost, and average total cost functions on a graph. d. Shade in profit on your graph (hint: profit is the area of the rectangle: profit(Q) = (PM-ATC (QM))× Q³)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter9: Monopoly

Section: Chapter Questions

Problem 21RQ: How can a monopolist identify the profit-maximizing level of output if it knows its marginal revenue...

See similar textbooks

Similar questions

What is the usual shape of a total revenue curve for a monopolist? Why?
Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies?
Draw a monopolists demand curve, marginal revenue, and marginal cost curves. Identify the monopolists profit-maximizing output level. Now, think about a slightly higher level of output (sayQ0+1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?
How can a monopolist identify the profit-maximizing level of output if it knows its total revenue and total cost curves?
In what sense is a natural monopoly natural?
Imagine that you ale managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10 less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?
How is the demand curve perceived by a perfectly competitive firm different from the demand curve perceived by a monopolist?
11. A monopolist is faced with the following cost and revenue curves: (a) What is the maximum-profit output? 80 MC (b) What is the maximum-profit price? 70 (c) What is the total revenue at this price and output? 60 50 AÇ (d) What is the total cost at this price and output? 40 30 (e) What is the level of profit at this price and output? 20 AR () If the monopolist were ordered to produce 300 units, what would be the market price? 10 100 200 300 403 500 600 (2) How much profit would now be made? -10 MR (h) If the monopolist were faced with the same demand, but average costs were constant at £60 per unit, what output would maximise profit? -20 Quantity What would be the price now?. How much profit would now be made?. (k) Assume now that the monopolist decides not to maximise profits, but instead sets a price of £40. How much will now be sold? O What is the marginal revenue at this output? (m) What does the answer to (1) indicate about total revenue at a price of £40? (n) What is the price…
7. Monopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would and total cost would Therefore, a monopolist will produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal- revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR). 10 Demand 9 8 Inelastic Demand 7 6 Max TR 3 2 1 -1 -2 Marginal Revenue -3 -4 -5 2 3 4 6 7 8 9 10 Quantity
2. Consider a pharmaceutical company considering research and development of a new drug. They estimate that demand for this new, innovative product (the only of its kind) is given by p = 200-q, and the firm knows that once the drug is developed it can produce as much as it would like at a constant marginal cost of $10 (this implies a cost function of c(q) = 10q). (a) What is the monopolist's profit-maximizing price and quantity produced, pm and qm if they develop the drug? Be sure to include a well-labeled diagram! (b) If the firm expects that the R&D will cost $10,000, should the firm pursue this product innovation? (c) What is the most the firm should be willing and able to spend on this innovation? (d) What is the socially optimal quantity of output, q*? (e) What is the value of the innovation to society if it was competitively/efficiently supplied? (f) Calculate the deadweight welfare loss we should expect if the firm produces the new drug as a monopoly.
.
2. A monopolist produces its output in two factories, whose cost curves are given by C1 (q1) = 10q and C2 (q2) demand for the firm's product is given by P = 700 – 5Q where Q is the total quantity sold by the monopolist. (a) On a diagram, illustrate the monopolist's decision about how much to produce at each factory and overall and the price to charge. Briefly explain your diagram. (b) Numerically calculate the monopolist's optimal choices for qı, q2, Q, and P. (c) Suppose that labor costs increase in Factory 1 but not in Factory 2. How should the firm change (i.e. raise, lower, or leave unchanged) each of the values you found in (b)? Your answer should be qualitative, not quantitative. 10q3 where q1 and q2 are the amounts produced at each factory. The diagram might be useful but is not necessary.