MC = 20 + 3Q ontinuing Note: MR = 80 – 4/3Q = 80 – Q – ½Q = P – ½Q = P- (dP/dQ)Q = P(1 - 1/ED) %3! %3D %3D Setting MC = MR yields the profit-maximizing markup over marginal cost: MC = P(1 – 1/ED) P = MC[1/(1 – 1/Eo)] (P - MC)/P = 1/ED %3D %3D %3D a. Assume the market is monopolized. Find Q*, P*, and the elasticity of demand Ep at the profit- maximizing point and verify that the markup equation is satisfied: Q* = %3D P* = ED = (P - MC)/P = %3D b. Assume the market is monopsonized. Using the procedure in (a), which found MR as a function c P and Ep, find a formula for marginal expenditure (ME) as a function of P and Es. ME =

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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P = 80 – 2/3Q
MC = 20 + 3Q
Continuing with the equations:
Note:
MR = 80 – 4/3Q = 80 – ½Q – 2½Q = P – ½Q = P - (dP/dQ)Q = P(1 – 1/Ep)
Setting MC = MR yields the profit-maximizing markup over marginal cost:
MC = P(1 – 1/ED)
P = MC[1/(1 – 1/Eo)]
(P - MC)/P = 1/ED
a. Assume the market is monopolized. Find Q*, P*, and the elasticity of demand Ep at the profit-
maximizing point and verify that the markup equation is satisfied:
Q* =
p* =
ED =
(P - MC)/P =
b. Assume the market is monopsonized. Using the procedure in (a), which found MR as a function of
P and ED, find a formula for marginal expenditure (ME) as a function of P and Es.
ME =
Transcribed Image Text:P = 80 – 2/3Q MC = 20 + 3Q Continuing with the equations: Note: MR = 80 – 4/3Q = 80 – ½Q – 2½Q = P – ½Q = P - (dP/dQ)Q = P(1 – 1/Ep) Setting MC = MR yields the profit-maximizing markup over marginal cost: MC = P(1 – 1/ED) P = MC[1/(1 – 1/Eo)] (P - MC)/P = 1/ED a. Assume the market is monopolized. Find Q*, P*, and the elasticity of demand Ep at the profit- maximizing point and verify that the markup equation is satisfied: Q* = p* = ED = (P - MC)/P = b. Assume the market is monopsonized. Using the procedure in (a), which found MR as a function of P and ED, find a formula for marginal expenditure (ME) as a function of P and Es. ME =
14
C. Derive and simplify an expression for the profit-maximizing monopsony price markdown.
(ME – P)/P =
%3D
d. Find Es at the profit-maximizing point and verify that the markdown equation is satisfied:
Es
(ME-P)/P =
Transcribed Image Text:14 C. Derive and simplify an expression for the profit-maximizing monopsony price markdown. (ME – P)/P = %3D d. Find Es at the profit-maximizing point and verify that the markdown equation is satisfied: Es (ME-P)/P =
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