Question 1: Consider a market where aggregate demand is given by Q = 100 – P There is a monopoly firm in the market with costs of production C(Q) = 500 + 200 (a) Suppose that the firm is regulated to break even using a linear price. What price will it choose? What is total welfare? Compare this to the case where the firm can profit maximize using a linear price. (b) Suppose that the market demand is made up of 6 "rich" consumers each of whom has inverse demand P = 100 – 6.39 And 4 "poor" consumers each with inverse demand P = 100 – 809 Find the profit maximizing (single) two-part tariff if the same two-part tariff is offered to all consumers (c) Find the optimal group two-part tariffs (if the firm can identify rich and poor) (d) Find the incentive compatible two-part tariffs (second degree price discrimination)

Question 1: Consider a market where aggregate demand is given by Q = 100 – P There is a monopoly firm in the market with costs of production C(Q) = 500 + 200 (a) Suppose that the firm is regulated to break even using a linear price. What price will it choose? What is total welfare? Compare this to the case where the firm can profit maximize using a linear price. (b) Suppose that the market demand is made up of 6 "rich" consumers each of whom has inverse demand P = 100 – 6.39 And 4 "poor" consumers each with inverse demand P = 100 – 809 Find the profit maximizing (single) two-part tariff if the same two-part tariff is offered to all consumers (c) Find the optimal group two-part tariffs (if the firm can identify rich and poor) (d) Find the incentive compatible two-part tariffs (second degree price discrimination)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.2P

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QUESTION 7 A monopolist produces a good with a constant marginal cost of c = 10 and fixed cost of F = 1000. Demand for the product is given by D(p) = 90 - p. The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any losses of the company. Suppose the regulator's objective is to maximise the difference between total welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies St are BS where ß > 0. Which of the following statements is correct? O The unregulated monopoly price is 40 and price regulation is optimal for any B 4/5. O The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 2/5. O The unregulated monopoly price is 50 and price regulation is optimal for any B < 4/5. O The unregulated monopoly price is 40 and price regulation is optimal for any B≤ 2/5. O None of the above.
QUESTION 7 A monopolist produces a good with a constant marginal cost of c= 10 and fixed cost of F = 1000. Demand for the product is given by D(p) = 90-p. The firm could be subjected to price regulation that enforces marginal cost prices and subsidises any losses of the company. Suppose the regulator's objective is to maximise the difference between total welfare and the cost of subsidies allocated to the company. Assume the social cost of subsidies S are 3.5 where 8 20. Which of the following statements is correct? The unregulated monopoly price is 40 and price regulation is optimal for any ≤ 4/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 2/5. The unregulated monopoly price is 50 and price regulation is optimal for any ≤ 4/5. The unregulated monopoly price is 40 and price regulation is optimal for any ≤ 2/5. O None of the above.
Question 2 Alice is the monopoly producer for DrinkMeTM, a magical potion that makes you shrink in size. Market demand for this potion is given by p = 60 - 3Q and Alice's costs of production are C(q) = 12g. Please calculate the following quantities. %3D %3D a) Monopoly price, quantity and profits b) The fair market price in perfect competition c) The welfare loss which occurs due to the monopoly
Monopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…
In British Columbia, Canada a company named after Tim Hortons runs a monopoly on a sweet snack called Timbits! Suppose the demand for Timbits is P=90-Q and the cost function is C-Q How much would the consumer surplus, producer surplus and DWL be in case Tim Hortons a single-price monopoly? Suppose Tim Hortons could install a device in its premises that could immediately 11) predict the willingness to pay of every unsuspecting customer entering its franchise premises and charge them that corresponding amount! Additionally, suppose they could also stop resale of products, and thus become a first degree price discriminatıng monopoly. How much would the consumer surplus, producer surplus and DWL be in this case?
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Assume that Gas & Minerals is the only copper mining firm in Chile. The national demand for copper in thousands of tonnes per month is: q^d(p) = 15 - pThe total costs in millions of dollars are: c(q) = 5q(a) What would be the profit-maximising level of production for this firm? Determine the monopoly price and quantify the profits. Graph the demand, marginal revenue and marginal cost, identifying their values along with determining the social loss generated and identifying it in the graph above. Assume now that due to a bad internal restructuring, the operations manager was fired and a professional with little mining experience was hired. The new manager does not know environmental protocol and mining waste (tailings) has gotten out of control and has been dumped into a river. This generated a negative externality on copper production. The estimated damage is US$5 million per 1,000 tonnes.(b) Obtain the social marginal cost of this mining activity.(c) What level of production will…
7. A monopoly firm faces a demand curve given by 2(P) = 40 – 2p. The firm has constant MC=$12. (A) Find the firm's marginal revenue and use this to find the firm's profit-maximizing output and price. Draw a diagram. Hint: first figure out how express the firm's total revenue in terms of Q. Then if you know calculus, take the derivative of this expression with respect to Q to find marginal revenue. If you don't know calculus, recall that for a linear demand curve, (1) the slope of the marginal revenue curve is twice (in absolute value) the slope of the demand curve; and (2) the marginal revenue curve intersects the vertical (price) axis at the same point as the demand curve; and (3) the marginal revenue curve hits the quantity axis at half the distance of the demand curve. (B) Find the price elasticity of demand at the profit-maximizing output and price. Is demand elastic?
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A monopolist sells a good to two demographically separate markets. The demand for its good in the first market given by Q1 = 24 – P1, (2) while the demand in the second market is given by Q2 = 20 – P2. (3) The monopolist has constant average and marginal costs of $2 per unit. Answer the following:
Question 3: Monopoly Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P = 1000 – 10Q, 1000Q – 10Q² = 1000 – 20Q Total reveпие:TR 3 Marginal Revenue:MR Marginal Cost: MC = 100 +10Q where Q indicates the number of copies sold and P is the price in Ectenian dollars. a. Find the price and quantity that maximize the company's profit. b. Find the price and quantity that would maximize social welfare. c. Calculate the deadweight loss from monopoly. d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options: i. a flat fee of 2,000 Ectenian dollars. ii. 50 percent of the profits. iii. 150 Ectenian dollars per unit sold. iv. 50 percent of the revenue. For each option, calculate the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the deadweight loss from monopoly? Explain.