Answered: A monopolist has a single customer with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A monopolist has a single customer with the demand curve P=20-Q. (So this customer will buy different quantities at different prices.) Suppose the monopolist’s marginal cost is MC=0. (And assume FC=0 to keep things simple.)

a) The monopolist uses “standard” pricing, i.e., it sets a single price for all units that the customer buys. The graph below shows the demand curve and MC curve. Solve graphically for the price & quantity that will maximize profit for the monopolist. Shade the areas on your graph that represent consumer surplus and the monopolist’s profit.

Having observed the success of the monopolist in part (a), you’re plotting to enter the market and tempt the single customer to switch to you. Assume the following:

You also have FC=0 and MC=0.
You and the monopolist produce identical products, so if you do attract away the single customer, they come to you with the same demand curve as above, i.e., P=20-Q
IMPORTANT: The monopolist has committed to their price from part (a), even if you enters. (E.g., the monopolist has publicly posted their price from (a) and it can’t be adjusted.)

b) One way for you to enter the market is to employ “standard” pricing. If you do that and wish to tempt the customer to switch to you, then the price that will maximize your profit is 1 penny less that the monopolist’s posted price from (a). If you announce that price, how many units will the customer buy from you and what will be your profit?

c) As an alternative to the “standard” pricing in part(b), you decide to study whether a two-part tariff might be an effective way to tempt the customer to switch to you.

IMPORTANT REQUIREMENT: The monopolist’s price in part (a) is still available to the customer, and that means that the customer will only switch to you if they are better off buying from you than from the monopolist.
What is the two-part tariff that maximizes your profit? Explain your answer and explain how it addresses this requirement. What is your profit with your answer? What is the consumer’s CS with your answer?

**The Carbon Cycle: An Overview**

The carbon cycle is a critical ecological process through which carbon is exchanged between the biosphere, geosphere, hydrosphere, and atmosphere of the Earth. Here's a detailed explanation of the carbon cycle:

1. **Photosynthesis**: Plants absorb carbon dioxide (CO2) from the atmosphere and, using sunlight and water, convert it into glucose and oxygen in a process known as photosynthesis.

2. **Respiration**: Organisms, including plants and animals, consume oxygen and glucose to produce energy, releasing CO2 and water as byproducts back into the atmosphere.

3. **Decomposition**: When organisms die, decomposers such as bacteria and fungi break down their bodies, releasing stored carbon back into the soil and atmosphere.

4. **Combustion**: The burning of fossil fuels and biomass releases significant amounts of CO2 into the atmosphere.

5. **Ocean Uptake**: Oceans absorb a large amount of CO2 from the atmosphere. This CO2 can be used by marine organisms and also contributes to the formation of carbonate compounds.

6. **Fossilization**: Over millions of years, dead plant and animal material can become fossilized, eventually forming fossil fuels such as coal, oil, and natural gas.

7. **Sedimentation**: Carbon from dead marine organisms can settle on the ocean floor, forming sedimentary rocks over geological time scales.

This cycle plays a vital role in regulating Earth's climate by controlling the concentration of carbon dioxide, a major greenhouse gas, in the atmosphere. Understanding the carbon cycle is crucial for addressing climate change and managing ecosystems sustainably.

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