Suppose that a monopolist's market demand is given by P = 100 - 2Q and that marginal cost isgiven by MC = Q/2, while the marginal revenue is MR = 100 – 4Q. Assume the firm has nofixed costs.a) Calculate the profit-maximizing monopoly price and quantity.b) Calculate the price and quantity that arise under perfect competition with a supplycurve P = Q/2.c) Compare consumer and producer surplus under monopoly versus perfectly competitivepricing. What is the deadweight loss due to monopoly?d) Explain in a sentence or two what the deadweight loss represents in terms ofconsumers' willingness to pay compared to the cost of production.

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Answered: Suppose that a monopolist's market…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that the industry demand curve is given by P = 200 - Q and an incumbent monopolist faces the following total cost function: T CI = 50qI and potential entrants face the following cost function: T CE = 60qE. a. What is the limit price in this market? b. If the monopolist charged its profit-maximizing price, what would its profits equal? c. If the monopolist charged the limit price, what would its profits equal? Please write detailed answers, thanks a lot.
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A monopolist has a single customer with the demand curve P=20-Q. (So this customer will buy different quantities at different prices.) Suppose the monopolist’s marginal cost is MC=0. (And assume FC=0 to keep things simple.) a) The monopolist uses “standard” pricing, i.e., it sets a single price for all units that the customer buys. The graph below shows the demand curve and MC curve. Solve graphically for the price & quantity that will maximize profit for the monopolist. Shade the areas on your graph that represent consumer surplus and the monopolist’s profit. Having observed the success of the monopolist in part (a), you’re plotting to enter the market and tempt the single customer to switch to you. Assume the following: You also have FC=0 and MC=0. You and the monopolist produce identical products, so if you do attract away the single customer, they come to you with the same demand curve as above, i.e., P=20-Q IMPORTANT: The monopolist has committed to their price from part (a),…
The graph above shows the cost and revenue curves for a natural monopoly that provides electrical power to the town of Fanaland. If unregulated, the monopolist operates to maximize its profit. (a) Identify the monopolist’s profit-maximizing quantity and price. (b) Assume the town government of Fanaland regulates the monopolist’s price to achieve the allocatively efficient quantity. What price would the government set in order to achieve the allocatively efficient quantity? (c) Will producing the allocatively efficient quantity be economically feasible for the monopolist? Explain. (d) Suppose instead the town government wants to regulate the monopolist to earn zero economic profit. What price would the government set to have the monopolist earn zero economic profit? (e) Based on your answer to part (d), will the deadweight loss increase, decrease, or stay the same as that of the unregulated monopolist? Explain.
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