A monopolist faces a market demand curve given by: Q = 80 - p. Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000. The monopoly will choose a price-quantity combination of (50 and 30) to maximize profit. The total profit is 425. Question 1: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain be from this output level compared to the outcome described above? Question 2: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (question 1) and where profit was 425, and price -quantaty combination (50 and 30)?
A monopolist faces a market
Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000.
The
Question 1: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain be from this output level compared to the outcome described above?
Question 2: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (question 1) and where profit was 425, and price -quantaty combination (50 and 30)?
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