9. A monopolist produces a good at a constant marginal cost of Suppose the monopolist is able to practice first-degree price discrimination (FDPD). The (in- verse) market demand function for the good is given by P=10-bQ where P is price, Q is quantity and b> 0 is a constant. Let DL(Q) denote the deadweight loss at quantity Q, and let CS(Q) denote the consumer surplus at Q. (a) Under FDPD, the marginal revenue function of the monopolist is the same as the market demand function. Is this true or false? Explain carefully. (b) Let Q be the monopolist's optimal quantity under FDPD. Calculate the value of CS(Q')-DL(Q). (c) Suppose a regulator imposes a per-unit tax of t on the monopolist and re- distributes tax revenue to consumers, so that tax revenue becomes part of consumer surplus. Let Q; be the monopolist's optimal quantity under FDPD given a per-unit tax of t. Calculate the value of t that maximises CS(Q)-DL(07).

9. A monopolist produces a good at a constant marginal cost of Suppose the monopolist is able to practice first-degree price discrimination (FDPD). The (in- verse) market demand function for the good is given by P=10-bQ where P is price, Q is quantity and b> 0 is a constant. Let DL(Q) denote the deadweight loss at quantity Q, and let CS(Q) denote the consumer surplus at Q. (a) Under FDPD, the marginal revenue function of the monopolist is the same as the market demand function. Is this true or false? Explain carefully. (b) Let Q be the monopolist's optimal quantity under FDPD. Calculate the value of CS(Q')-DL(Q). (c) Suppose a regulator imposes a per-unit tax of t on the monopolist and re- distributes tax revenue to consumers, so that tax revenue becomes part of consumer surplus. Let Q; be the monopolist's optimal quantity under FDPD given a per-unit tax of t. Calculate the value of t that maximises CS(Q)-DL(07).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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