Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.6P
a)
To determine
To find: Output and price charged in each market and the total profit of the given situation.
b)
To determine
To find: The new profit of the situation and new price and quantity in each market.
c)
To determine
To find: The price and quantity when transportation cost is zero.
d)
To determine
To find: The pricing policy under linear two part tariff.
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Consider a monopoly market in which the market demand curve is given by P = 240 – 2Q, the marginal revenue curve is MR = 240 – 4Q, the marginal cost curve is MC = 2Q, and there are zero fixed costs. Suppose the government intervenes and turns the market into a competitive market, and all the firms in the market have the same marginal cost curve as the monopolist, MC = 2Q, and zero fixed costs. How much is the resulting gain in total surplus?[12:17]800
600
300
400
A monopolist faces two markets with demand functions given by q1 = 120 − p1
q2 = 120 − 2p2
The monopolist has no fixed costs of production, and the marginal cost of production is $10.
Suppose the monopolist charges the price $80 per unit of output. What is the market demand at this price?
Suppose that the monopolist charges different prices per unit of output in the two markets. How much output is produced? What are the prices? What is the monopolist’s profit?
Suppose that the monopolist can produce with total cost: TC = 200. 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 Q, = 240 - 4P, and Q2 = 360 - 2P2. Suppose that consumers can mail the
product from cheaper location to a more expensive location at a mailing cost $24. What would be the
monopolist profit?
O $14896
O $11516
$13844
O $12672
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- A monopolist faces the following aggregate demand function: Q = 28 – 1/2 P. Total production costs for the firm are TC(Q) = 40Q. Calculate the consumer surplus, producer surplus, and profits in equilibrium. Then, suppose that the monopolist decides to spend 10 to purchase a patent that would allow her to decrease total costs by 4 per unit. Find the new equilibrium quantity, price, new consumer surplus, producer surplus, and profits to the monopolist after the purchase of the patent.arrow_forwardConsider the graph below that represents the demand curve for a good, the marginal revenue of a potential monopolist, and the marginal cost before an innovation (MC1 = 1) and after a potential innovation of size y (MC2 = 1/y). In the initial period, all firms have the same marginal cost MC1. A single firm can choose to try to innovate. If it is successful, it becomes a monopolist in the second period with marginal cost MC2. 1 1/Y Demand Marginal revenue MC1 MC2 ୪arrow_forwardSuppose that the monopalist can produce with total cost: TC = 100. 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 Q,= 120 - 4P, and Q = 240 - 2P. Suppose that consumers can mail the product from cheaper location to a more expensive location at a mailing cost $24. What would be the monopolist profit? $6116 $4832 $5862 $5384arrow_forward
- Consider a monopolist facing two consumers with the following two inverse demand functions: P=200-4Q1 and P=122- 6Q2. Assume that fixed costs are zero and that the marginal cost is equal to $8.a) Suppose the monopolist can differentiate between the two consumers. The monopolist decides to use a twoparttariff that permits both consumers to stay in the market. Solve for each consumer’s demand, fixed fee andmonopolist profits. b) Assume the monopolist cannot differentiate between the two consumers and hence cannot apply a two-parttariff. He decides to serve both consumers. Solve for the equilibrium aggregate demand and price in themarket, demand of each consumer and the monopolist profit.arrow_forwardSuppose a monopolist faces two types of consumers: one with demand curve Q1 = 500 – 2P, and the other with demand curve Q2 = 1500 – 3P. Suppose the firm monopolist knows these demand curves but cannot tell the difference between an individual consumer of type 1 versus type 2. They can charge only one price to the aggregate market demand (horizontal sum across quantities of the two buyer types). Construct the market demand curve (it may have a kink), and calculate the monopolist’s optimal quantity and price. Illustrate this on a graph. Do they serve both markets or do they price out the low demand type? Illustrate the monopolist’s optimal second-degree price discrimination strategy on a graph, and calculate the price-quantity bundles offered to the market under this strategy. Assume the monopolist’s marginal costs are constant and equal to 100. Suppose the monopolist can segment the market between the two types directly and engage in price discrimination. What are the monopolist’s…arrow_forwardThe demand a monopoly faces is p = 400 - Q+A 0.5 where Q is its quantity, p is its price, and A is the level of advertising. Its marginal cost of production is $40, and its cost of a unit of advertising is $1. What is the firm's profit equation? The monopoly's profit equation (л) as a function of Q and A is π= (400-Q+A05) Q-40Q-A. (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a superscript can be created with the ^ character.) The monopoly's profit-maximizing price is p = $270, quantity is Q = 260, and advertising is A = 16900. (Enter numeric responses using real numbers rounded to two decimal places.)arrow_forward
- Suppose that you're working to calculate a monopolist's profit-maximizing uniform price in a market where the inverse demand function is P(y) = 52 - 3y and you've reached the point that you know the monopolist's profit maximization condition is 52-6y = 4 What is the profit-maximizing QUANTITY? y = 8 y = 14 y = 28 and you've reached the point that you know the monopolist's profit maximization condition is 52-6y = 4 What is the profit-maximizing QUANTITY? O y = 8 y = 14 y = 28 y = 9 If a monopolist can carry out perfect price discrimination, the outcome in the market will be: Pareto Efficient, as in Perfect Competition Inefficient, exactly as under Monopoly Uniform Pricing Between the Efficiency of Perfect Competition and the Inefficiency of Uniform pricingarrow_forwardThere is a monopolist, Concrete Mex, in the concrete market in Mexico. The demand function is Qd= 100-50p. The marginal cost of production is c = 0.4. a) Calculate the consumer surplus, producer surplus, deadweight loss, and illustrate them in a graph. b) ConcreteMex claimed the high price is due to high transportation costs and persuaded the government to help cut down the costs. As a result, for every unit of concrete sold, the government subsidizes Concrete Mex 0.2 dollars. Under the subsidy policy and the new price, calculate the consumer surplus, ptooducer surplus, and deadweight loss. You do not need to consider government spending for thee deadweightoss. c) What is the total government expenditure for the subsidy policy? Compare your answers in questions a and b. , and argue who benefit more from the policy, the consumers or ConcreteMex? Illustrate and explain how the producer surplus changes from Question 1.2 to 1.4 in a diagram.arrow_forwardAssume a monopoly firm is able to engage in perfect (or first degree) price discrimination and the demand for the monopolist's product is given by the data in the chart. This firm will sell one unit of output if it charges a price of $ . The firm can lower the price to $ to sell a second unit, which would result in total revenue equal to $ lower the price to $ The firm can to sell a third unit, which would result in total revenue equal to $ to sell a fourth unit, which would The firm can lower the price to $ result in total revenue equal to $ Price per unit $20 16 12 8 4 0 Quantity Demanded 0 1 2345arrow_forward
- Suppose that a monopolist, who sells all units at a uniform price, faces an inverse market demand curve P=100- 2Q. a) If there is no cost of production, what output would the firm produce to maximize profit, what price would the firm charge, and what profit would the firm earn? Give the numerical value of these three variables, showing how you determined them. b) If the firm’s total cost were instead positive, given by the function TC=10Q, what output would the firm produce to maximize profit, what price would the firm charge, and what profit would the firm earn? Give the numerical value of these three variables, showing how you determined them.arrow_forwardMarket research shows that a particular monopolist faces a market demand function given byIts cost function isP （Q） = 50 - 2Q.C（Q）= 47 + 10Q What is the monopoly market price and quantity? What is the monopolist’s profit? What is consumer surplus at the monopoly price? What would the price and quantity be in this market be if the monopolist behaved as in perfect competition? What is the consumer surplus in the case of perfect competition? Which is higher and why? What is the “social cost” of monopoly?arrow_forwardA monopolist originally charges one price when producing output for consumers with a market demand function P(Q) = 86 – Q. Their total cost function is TC(Q) = 7,500 + 8Q, where MC is constant and equal to $8. Part (a): When the firm behaves as a single-price monopolist, what is the equilibrium market price and market output level? Suddenly, the firm discovers that there are actually two groups of consumers in the market. The first group demands the product according to P (q1) = 98 – 1, while the second group's willingness to pay can be summarized as P(q2) = 62 – 92, where q1 + q2 %3D Part (b): How much output is sold to each group and what price is charged to each group of consumers?arrow_forward
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