Consider a monopolist facing a linear inverse demand curve p(q) = a bq, where q denotes units of output and b > 0 represents the slope of the inverse demand curve. This rm faces cost function C (q) = F + cq, where F denotes its xed costs (can contain sunk costs), c represents the monopolist s (constant) marginal cost of production and assume a > c 0.Let us say that a regulator wants to induce the monopolist to produce q instead of qm. Would the monopolist have positive pro ts at q ? Suppose F represents only sunk costs, would the monopolist produce q in this case? Explain.Suppose F are only sunk costs and that the regulator of the monopoly establishes the price the monopoly takes as given and then decides to produce the level that maximizes pro ts. What is the price level the regulator would need to establish for the monopoly to be induced to produce the social optimum level q ? How would your conclusion change if F are xed costs? Explain.

In the absence of a regulator, the monopolist would equate his marginal revenue (MR) to marginal…

Answered: Consider a monopolist facing a linear…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Consider a monopolist facing a linear inverse demand curve p(q) = a bq, where q denotes units of output and b > 0 represents the slope of the inverse demand curve. This rm faces cost function C (q) = F + cq, where F denotes its xed costs (can contain sunk costs), c represents the monopolist s (constant) marginal cost of production and assume a > c 0.

Let us say that a regulator wants to induce the monopolist to produce q instead of q^m. Would the monopolist have positive pro ts at q ? Suppose F represents only sunk costs, would the monopolist produce q in this case? Explain.
Suppose F are only sunk costs and that the regulator of the monopoly establishes the price the monopoly takes as given and then decides to produce the level that maximizes pro ts. What is the price level the regulator would need to establish for the monopoly to be induced to produce the social optimum level q ? How would your conclusion change if F are xed costs? Explain.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions