Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.2P
a)
To determine
To explain:
Output level,
b)
To determine
To identify:
Price-quantity combination and amount of profit earned by monopolist firm.
c)
To determine
To find: Price-quantity combination and amount of profit earned by monopolist firm.
d)
To determine
To plot: Graphical representation of MC curves, market demand curve.
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A monopolist has a cost function given by C(y)=y2 and faces a demand curve given by P(y) = 120-y.
a) What is the profit maximising level of output and the price that the monopolist will charge? Show your calculations.
b) If you impose a lump sum tax of £100 on this monopolist, what will be the impact on output? Explain your calculations and the intuition behind your result.
c) If you wanted to choose a price ceiling for this monopolist so as to maximise consumer plus producer surplus, what price ceiling should you choose? How much output will the monopolist produce at this price ceiling? Explain your calculations.
Suppose a monopolist has the following cost function C(Q) = 40Q (with marginal cost MC = 40).
Suppose it faces market demand of P = 100 - Q.<
(a) Sketch market demand, marginal revenues, and marginal costs. Be neat.<
(b) What is the monopolist's optimal level of output, price, and profits? Show your work.<
(c) What is the deadweight loss (DWL) associated with the monopoly output? Show your work and
explain why the DWL arises.<
(d) (Cournot Competition) Now suppose we added a second firm that has identical costs to the
monopolist. Show that the resulting Cournot Equilibrium has each firm producing output of 60
units. That is, show that, if the other firm sells 60 units, then the best a firm can do is also sell
60 units.
(e) What are total profits under Cournot Competition compared to the Monopoly case? Why do they
differ?
(f) What happens to the deadweight loss under Cournot Competition relative to the Monopoly case?
Explain why this happens.<
A monopolist faces a market demand curve given by: Q= 70−p.
a) If the monopolist can produce at constant average and marginal costs of: AC = MC = 6. what output level will the monopolist choose to maximize profits? What is the price at this output level? What are the monopolist’s profits?
b)Assume instead that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q^2 - 5Q + 300.With the monopolist facing the same market demand and marginal revenue, what price- quantity combination will be chosen now? What will profits be?
c)Assume instead that the monopolist has a cost structure where total costs are described by: C(Q) = 0.0133Q^3 -5Q + 250.With the monopolist facing the same market demand and marginal revenue, what price-quantity combination will be chosen now? What will profits be?
d) Graph the market demand curve, the MR curve, and the three marginal cost curves from (a), (b), and (c).
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