Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
*You only need to answer question d*
![d. Calculate the monopoly firm's optimal price and quantity using the given functions.
A monopoly firm holding a patent right faces a market demand given in the table. We assume
there is no fixed costs and the monopolist maximizes profit.
1.
e. Show CS, PS, and DWL on your graph in part c. Calculate the exact size of CS, PS,
TS, and DWL. (Fill in the blanks in part h.)
ATC
a. Fill in the blanks. [Hint: MR = 4TR
MC =
AQ
AQ
You may want to construct columns for AQ
ATR, and ATC to find MR and MC.]
f. Now the monopolist decides to conduct the perfect price discrimination. That means,
the monopolist charges each consumer exactly his or her willingness to pay. Draw the
same graph as in part c, show CS, PS, and DWL on your graph and calculate the exact
size of CS, PS, TS, and DWL in this situation. (Fill in the blanks in part h.)
P
Q
TR
MR
TC
MC
Profit
20
30
600
16
240
8
360
18
40
320
g. After the patent right run out, many firms enter the market and sell identical products
16
50
400
in the market. Now the market is assumed to be perfectly competitive. (Fill in the blanks
in part h.) In the long-run, what will be the market price and firms' profit? Briefly
explain why. [Hint: Use the fact that ATC is always 8 in this case.]
14
60
480
12
70
560
b. From the table above, what is the price the monopoly firm would choose?
h. Find the size of CS, PS, TS, and DWL from part e, part f, and part g. Fill in the blanks.
From now on, we will use the function forms of the previous table:
поw
Monopoly
(Part e)
Monopoly with
price discrimination
(Part f)
Perfect Competition
(Part g)
Demand: P = 26 -
Marginal Revenue: MR = 26 -Q
CS
Marginal Cost: MC = 8
PS
c. Draw demand, MR and MC curves on the same graph. (Note: This question does not
TS
DWL
carry any points, because the graph is drawn for you as below. You can use it directly
to answer the following questions.)
Question: According to the table above, is the market outcome efficient when the
P
monopolist conducts the perfect price discrimination? If so, explain why.
26
8
MC
MR
Q](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcfcc628e-0ed9-4421-801f-d415a517e385%2F35239868-7c81-4158-8d0e-9c1ddaedb18f%2F3xx02fk_processed.png&w=3840&q=75)
Transcribed Image Text:d. Calculate the monopoly firm's optimal price and quantity using the given functions.
A monopoly firm holding a patent right faces a market demand given in the table. We assume
there is no fixed costs and the monopolist maximizes profit.
1.
e. Show CS, PS, and DWL on your graph in part c. Calculate the exact size of CS, PS,
TS, and DWL. (Fill in the blanks in part h.)
ATC
a. Fill in the blanks. [Hint: MR = 4TR
MC =
AQ
AQ
You may want to construct columns for AQ
ATR, and ATC to find MR and MC.]
f. Now the monopolist decides to conduct the perfect price discrimination. That means,
the monopolist charges each consumer exactly his or her willingness to pay. Draw the
same graph as in part c, show CS, PS, and DWL on your graph and calculate the exact
size of CS, PS, TS, and DWL in this situation. (Fill in the blanks in part h.)
P
Q
TR
MR
TC
MC
Profit
20
30
600
16
240
8
360
18
40
320
g. After the patent right run out, many firms enter the market and sell identical products
16
50
400
in the market. Now the market is assumed to be perfectly competitive. (Fill in the blanks
in part h.) In the long-run, what will be the market price and firms' profit? Briefly
explain why. [Hint: Use the fact that ATC is always 8 in this case.]
14
60
480
12
70
560
b. From the table above, what is the price the monopoly firm would choose?
h. Find the size of CS, PS, TS, and DWL from part e, part f, and part g. Fill in the blanks.
From now on, we will use the function forms of the previous table:
поw
Monopoly
(Part e)
Monopoly with
price discrimination
(Part f)
Perfect Competition
(Part g)
Demand: P = 26 -
Marginal Revenue: MR = 26 -Q
CS
Marginal Cost: MC = 8
PS
c. Draw demand, MR and MC curves on the same graph. (Note: This question does not
TS
DWL
carry any points, because the graph is drawn for you as below. You can use it directly
to answer the following questions.)
Question: According to the table above, is the market outcome efficient when the
P
monopolist conducts the perfect price discrimination? If so, explain why.
26
8
MC
MR
Q
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