Question 4. Consider a monopolist facing a demand curve of the form D(p) = 100 - 2p where p is the unit price. Suppose the monopolist has a constant marginal cost of production of $2 a unit. Bunter was asked to determine the price which would maximize consumer surplus. Here is his solution: Total surplus as a function of price is f50 (100 – 2x)dx. The derivative of this with respect to p is -(100-2p). This is maximized by making p as large as possible, i.e., p = 50. Is Bunter correct? If not, what is the error that Bunter has made?

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Question 4. Consider a monopolist facing a demand curve of the form D(p) = 100 – 2p where p is the
-
unit price. Suppose the monopolist has a constant marginal cost of production of $2 a unit.
Bunter was asked to determine the price which would maximize consumer surplus. Here is
his solution:
Total surplus as a function of price is 50(100 – 2x)dx. The derivative of this with respect to
p is -(100-2p). This is maximized by making p as large as possible, i.e., p = 50.
Is Bunter correct? If not, what is the error that Bunter has made?
Transcribed Image Text:Question 4. Consider a monopolist facing a demand curve of the form D(p) = 100 – 2p where p is the - unit price. Suppose the monopolist has a constant marginal cost of production of $2 a unit. Bunter was asked to determine the price which would maximize consumer surplus. Here is his solution: Total surplus as a function of price is 50(100 – 2x)dx. The derivative of this with respect to p is -(100-2p). This is maximized by making p as large as possible, i.e., p = 50. Is Bunter correct? If not, what is the error that Bunter has made?
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