Suppose that the monopolist faces a linear demand curve, P(Q) = A - BQ. Further suppose that the monopolist has the marginal cost function: MC = Q. 1. Find the revenue as a function of Q. 2. Find the marginal revenue as a function of Q. 3. Find the quantity that maximizes the monopolist's profit as a function of A and B. 4. Find the equilibrium price as a function of A and B. 5. Let's use some numbers. Suppose A = 10 and B = 2. Solve for the profit-maximizing quantity and price. 6. Using A = 10 and B = 2, draw a demand curve and a marginal revenue function as well as marginal cost. Shade the deadweight loss. Also label clearly the profit-maximizing quantity and price chosen by the monopolist. 7. What would have been the competitive equilibrium price and quantity (hint: equate MC and the demand function)? Label the competitive equilbrium point. Also compute the size of the deadweight loss due to inefficiency casued by the monopolist behavior.

Suppose that the monopolist faces a linear demand curve, P(Q) = A - BQ. Further suppose that the monopolist has the marginal cost function: MC = Q. 1. Find the revenue as a function of Q. 2. Find the marginal revenue as a function of Q. 3. Find the quantity that maximizes the monopolist's profit as a function of A and B. 4. Find the equilibrium price as a function of A and B. 5. Let's use some numbers. Suppose A = 10 and B = 2. Solve for the profit-maximizing quantity and price. 6. Using A = 10 and B = 2, draw a demand curve and a marginal revenue function as well as marginal cost. Shade the deadweight loss. Also label clearly the profit-maximizing quantity and price chosen by the monopolist. 7. What would have been the competitive equilibrium price and quantity (hint: equate MC and the demand function)? Label the competitive equilbrium point. Also compute the size of the deadweight loss due to inefficiency casued by the monopolist behavior.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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