Assume demand for a particular product is given by p = 120 - q and firms produce with costs c(q) = cq+F=20q+F, i.e., with a marginal cost of 20 and a fixed cost F. (a) Suppose there is a monopolist in the market. (i) How do average costs depend on output? How do we label this relation and what does it mean? (ii) Derive optimal production, price and profits of the monopolist. For what range of F does the monopolist operate? L s] Suppose a second firm enters the market and the two firms share the market equally, i.e., each firm is still a monopolist but instead of a total demand of q = 120 - p she now faces a demand of q = 60 -0.5p. Derive optimal production, price and profits for one of the two firms. For what range of F do the two firms operate?

Assume demand for a particular product is given by p = 120 - q and firms produce with costs c(q) = cq+F=20q+F, i.e., with a marginal cost of 20 and a fixed cost F. (a) Suppose there is a monopolist in the market. (i) How do average costs depend on output? How do we label this relation and what does it mean? (ii) Derive optimal production, price and profits of the monopolist. For what range of F does the monopolist operate? L s] Suppose a second firm enters the market and the two firms share the market equally, i.e., each firm is still a monopolist but instead of a total demand of q = 120 - p she now faces a demand of q = 60 -0.5p. Derive optimal production, price and profits for one of the two firms. For what range of F do the two firms operate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume demand for a particular product is given by p= 120 q and firms produce with costs c(q) = cq+F=20q+ F, i.e., with a marginal cost of 20 and a fixed cost F. (a) Suppose there is a monopolist in the market. (i) How do average costs depend on output? How do we label this relation and what does it mean? (ii) Derive optimal production, price and profits of the monopolist. For what range of F does the monopolist operate?
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