There is a monopolist manufacturer (e.gthe car maker) in the wholesale marketwith the marginal cost at 40, MCM = 40 (no fixed costs), and a monopolist retailer(e.g., the car dealer) in the retail marketwith the retail demand equation, p= 360-q. And they work separatelyfrom each other. First the manufacturersets the wholesale price, w, in thewholesale market; second afterobserving the wholesale price w, theretailer will decide the retail price, p, inthe retail market. Suppose now themanufacturer and the retailer still workseparately from each other. Design afranchise contract so that (1) togetherthey can achieve the total profit as in theintegration case (Part II) and (2) it willmake the manufacturer's profit triple theretailer's profit, i.e., \pi M = 3\pi R. (Q2E). How to design this franchisecontract?

We must take into account the profit-maximizing tactics of the manufacturer and the retailer in…

Answered: There is a monopolist manufacturer (e.g…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The following graph gives the demand (D) curve for water services in the fictional town of Streamship Springs. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local water company, a natural monopolist. On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist. PRICE (Dollars per hundred cubic feet) 40 36 32 28 24 20 0 0 1 2 3 5 6 7 8 QUANTITY (Hundreds of cubic feet) MR 4 True ATC MC O False 9 10 D The water company is experiencing economies of scale. Which of the following statements are true about this natural monopoly? Check all that apply. + Monopoly Outcome The water company must own a scarce resource. It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers. In order for a monopoly to exist in this case, the government must have intervened and created it.…
Albert and Johny are the only sellers of Motorbikes in Ireland. The inverse market demand function for motorbikes is P(Y)= 200- 2Y . Both firms have the same total cost function: T(C)= 12Y and the same marginal cost: M(C)=12. Suppose now that the two firms decide to act like a single monopolist. What will the total quantity of Motorbikes sold in the market be and what will the equilibrium price be? Represent the profit maximisation problem on a graph and indicate the price and quantity at the equilibrium. Calculate the total profit made by the two firms when they act like a monopoly. Compare it with the total profit they were making in the Stackelberg oligopoly. For the two firms to be willing to agree to act as a monopoly, how should they split the quantity to produce between them? We assume that if they do not agree to act like a monopoly, then the market structure is the Stackelberg oligopoly studied above. We further assume that no money transfer is possible between the two…
A monopolist is producing 2 goods. A demand for the first good: A demand for the second good: The total cost expression: P1 = 21 – 2(Q1 – Q2) P2 = 30 – 3(Q2 – Q1) TC = Q1 (1+ Q2) (I) Maximize the profit of the monopolist. Find optimal outputs, prices and profit. (Using the second order conditions prove that you have found the maximum profit.) (II) Now monopolist is restricted to produce a total of 10 units of either goods. (B) Maximize the profit of the monopolist using the method of Lagrange multipliers. What is the interpretation in this case of the value of the Lagrange multiplier?
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.
BYOB is a monopolist in beer production and distribution in the imaginary economy of Hopsville. Suppose that BYOB cannot price discriminate; that is, it sells its beer at the same price per can to all customers. The following graph shows the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) for beer in this market. Place the black point (plus symbol) on the graph to indicate the profit-maximizing price and quantity for BYOB. If BYOB is making a profit, use the green rectangle (triangle symbols) to shade in the area representing its profit. On the other hand, if BYOB is suffering a loss, use the purple rectangle (diamond symbols) to shade in the area representing its loss. Suppose that BYOB charges $2.50 per can. Your friend Charles says that since BYOB is a monopoly with market power, it should charge a higher price of $3.00 per can because this will increase BYOB’s profit. Complete the following table to determine whether Charles is…
1) Suppose that a monopolist producing bicycles can divide the aggregate demand into two groups: The domestic market and the foreign market. The demand curve for the monopolist's product in the domestic market is yı=1200-10p¡ and the demand foreign market is y2=800-10p2. The monopolist's total cost function is given by C(y)= 50y where y=yi+y2. curve for the monopolist's product in the a) Assume that the monopolist does not practice price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit. b) Assume that the monopolist practices third-degree price discrimination. Calculate his/her profit-maximizing price-quantity combination and the maximum profit in each market.
A wholesaler (upstream firm) sells a product to a retailer (downstream firm). Both the wholesaler and the retailer are monopolists. The wholesaler faces a constant marginal cost of $2 and charges the retailer a wholesale price w. The retailer resells the product to final consumers at price Pand the wholesale price w is its only cost. The demand for the good is P = 12 – Q. For your calculations below, assume that both the P and w are measured in dollars per unit. Hint: The retailer's profit function is T = (P – w)Q. a Find the profit-maximizing retail and wholesale prices and quantities.
Consider a downstream monopolist producing a final good that requires two inputs in fixed proportions. Input 1 is produced by upstream monopolist U1 and input 2 is produced by upstream monopolist U2. Suppose that the demand function for the final product is linear and the marginal costs of production for the upstream producers and final producer (other than for the two inputs) are equal to zero. What is the effect of a merger between the two upstream producers? a) The merger reduces the quantity of the final product sold to consumers and the merged firm's profits. b) The merger reduces the quantity of the final product sold to consumers and increases the merged firm's profits c) The merger increases the quantity of the final product sold to consumers and the merged firm's profits. d) The merger increases the quantity of the final product sold to consumers and decreases the merged firm's profits. e) Cannot be determined given the information provided.
Suppose a monopolist operates in a market with two types of consumers (“high” and “low” types) and offers two types of goods (“high quality” and “low quality”). In general, if the monopolist wants to implement second-degree price discrimination (i.e. to sell the “high quality” good to the “high” type consumer and the “low quality” good to the “low” type consumer), they may have to set the price of the “high quality” good lower than the willingness-to-pay of the “high” type.(a) True. (b) False.
d. Suppose the government imposes an average pricing rule, requiring the monopolist to set its price equal to the average total cost. Place the point labeled “Average cost pricing” at the appropriate coordinates to indicate the firm's price and quantity under this rule. Please place the Monoploy Pricing, Marginal Cost Pricing, and Average Cost Pricing on their appropriate places on the graph. Thank you!
Suppose that the monopolist can produce with total cost: TC = 10Q. Assume that the monopolist sells its goods in two different markets separated by some distance. The demand curves in the first market and the second market are given by Q₁ = 120-4P₁ and Q₂ = 240 - 2P₂. Suppose that consumers can mail the product from cheaper location to a more expensive location at a mailing cost $50. What would be the monopolist profit? $5450 $6050 O $6450 $5050

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