Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 14, Problem 14.7P
a)
To determine
To find: The output and price in the case of
b)
To determine
To find: Total loss of
c)
To determine
To find: The graph for the calculated results.
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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
If the inverse demand curve is
p=100-Q
and the marginal cost is constant at $10, how does charging the monopoly a specific tax of t= $12 per unit affect the monopoly optimum and the welfare of consumers,
the monopoly, and society (where society's welfare includes the tax revenue)? What is the incidence of the tax on consumers?
As a result of the tax, the profit-maximizing quantity decreases by 6 units and the profit-maximizing price increases by $6. (Enter numeric responses using real
numbers rounded to two decimal places.)
Show Transcribed Text
Consumer surplus
by $
The monopoly's surplus (producer surplus)
Finally, society's welfare
by $.
The consumer incidence of the tax is%.
by S.
Please refer to the figure provided.
Imagine that this market could be perfectly competitive, controlled by a monopolist who charges a single price or a monopolist who charges each customer a different price
1. How much is producer surplus if the market is controlled by a single-price monopolist?
$
2. Suppose now the monopolist is able to charge all customers the maximum price they are willing to pay, how much is the producer surplus?
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- Question 27 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? 300 800 400 600arrow_forwardFor the monopoly represented by the figure to the right, at what quantity is its revenue maximized? (Hint: Revenue is maximize where MR = 0.) Why is revenue maximized at a larger quantity than profit? Show the revenue curve. In the figure to the right, let D be demand and MR be marginal revenue. The quantity at which revenue is maximized is Q = 10 units. (Enter your response rounded to the nearest whole number.) Revenue is maximized at a larger quantity than profit because A. costs are decreasing in output. OB. marginal costs can be negative. C. marginal revenue is decreasing in output. OD. D. revenue is greater than profit. OE. profit is decreasing in output. Using the three-point curved line drawing tool, graph the monopoly's revenue curve. Label this curve 'R.' Carefully follow the instructions above, and only draw the required objects. p. $ per unit 30 28- 26- 24- 22- 20- 18- 16- 14- 12- 10- 8- 6- 4- 2- 0- 024 100- 90- 80- 70- 60- 50- 40- 30- 20- 10- 0- 6 MR D 8 10 12 14 16 18 20…arrow_forward1. Suppose a firm operates as a monopoly in the domestic (home) market for a product. The demand for itsproduct is given by the inverse demand function: P = 120 −QD. The company’s costs are: T C = 20Q+ 200and MC = $20.A) Find the firm’s profit-maximizing output and price as a monopoly.B) Find the firm’s total profit in the monopoly market.2. Suppose the home country open up to free trade and a foreign competitor enters the market. Assume thatthe foreign firm has the same cost structure as the home firm (the monopoly from the previous question).A) Derive the best response function for each firm (h-home and f-foreign)B) Find each firms’ output, the home market price, and each firms’ profit from the home market3. Now, suppose that in addition to the home country opening up to free trade, the foreign country has alsoopened up to free trade. As a result, both firms sell their product in both markets.A) Find each firms’ overall output, market price in each market, and each firms’ overall…arrow_forward
- A monopolist sells boat insurance policies linked to their registrations in two states, and resales between the two states is not allowed, as the registrations are in line with the rules set in each state. The demand curves for car insurance policies in the two states are: P1 = 200 – Q1 P2 = 150 – Q2 The monopoly's marginal cost is $50. a. Find the equilibrium quantity and price charged in each state. b. How would change the outcome if the monopolist’s marginal cost increases from $50 to $70 only in the first state for the company being able to discriminate prices between states? c. What would be the outcome if the government applies a tax of $30 per insurance (unit) to the latest scenario presented in b)? d. Present a graphical representation of this case study and discuss about the profit maximising output under the different scenarios presented above. Does the government have other alternatives to intervene this market?arrow_forwardBarbara is a producer in a monopoly industry. Her demand curve and total cost curve are given by Q = 160 - 4P and TC = 4Q. Barbara will produce ✓ units. Barbara will charge a price of Barbara will make a profit of Suppose now the government imposes a tax of 4 dollars on each unit sold. With the tax: Barbara will produce ✓ units. Barbara will receive a price per unit of higher). Barbara will make a profit of In addition to the tax, suppose the government imposes a business levy (a fixed cost) of $500. With this levy: Barbara will produce Barbara will charge a price of Barbara will make a profit of ✓. Note: we're looking for the Barbara receives, not the price consumers pay (which will be ✓ units. ✓. Note: we're looking for the Barbara receives, not the price consumers pay (which will be higher).arrow_forwardShould a firm shut down if its weekly revenue is $850, its variable cost is $300, and its fixed cost is $900, of which S600 is avoidable if it shuts down? Why? The firm should to save S (Enter a numeric response using an integer.)arrow_forward
- a) Suppose demand for a good was given as: P = 220 - 0.25Q and the marginal cost of producing the good was MC = 20. What price and output would result under pure monopoly? b) Referring to a): If marginal cost increased to MC = 30, what happens to price and output? b) True or False and Explain: If a pure monopolist makes excess economic profit in the short run they will sustain it in the long run.arrow_forwardAssume that the widget industry is a natural monopoly. Show on a graph the total surplus in the absence of government regulation, assuming the industry does in fact exist. Show also total surplus under rate-of-return regulation (a policy that leads to average cost pricing) and under two-tier pricing. Assume that the regulator has complete information about costs when determining the maximum consumer price under rate-of-return pricing.arrow_forwardGiven:Demand; P=20 - 0.005 Qand monopolist's costs: TC = 12,000 + 5 QMC =5a) Assume that in (two) block pricing, the first block sellsat a price of $15. Find the second block P and Q, and thereforerevenue, cost and profit.b) What is consumer's surplus in part a)?arrow_forward
- Monopoly: Work It Out Earlier we mentioned the special case of a monopoly where MC = 0. Let’s find the firm’s best choice when more goods can be produced at no extra cost. Since so much e‑commerce is close to this model—where the fixed cost of inventing the product and satisfying government regulators is the only cost that matters—the MC = 0 case will be more important in the future than it was in the past. For each demand curve, calculate the profit-maximizing level of output and price as well as the monopolist's profit. a. ?=200−?P=200−Q, fixed cost = 1,000. Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ b. ?=4,000−?P=4,000−Q, fixed cost = 900,000 (Driving the point home from part a) Profit‑maximizing output Q = Profit‑maximizing price P = $ Monopolist's profit: $ c. ?=120−12?P=120−12Q, fixed cost = 1,000…arrow_forwardLet the demand for products 1 and 2 be q1=20-2p1+p2 and q2=20+p1-2p2, where q1 and q2 are the quantities for good 1 and good 2, respectively and p1 and p2 are the prices of these goods. Assume that there are no fixed costs, and the marginal cost of production is 1 for each good. Calculate the prices that two separate monopolies would charge when each regards the other’s price as beyond its control. Calculate the prices that a single monopoly of both goods would charge.arrow_forwardA movie monopolist sells to college students and other adults. The demand function for students is Q1,800-25P, and the demand function for other adults is Q=2,400-25P. The marginal cost is $2 per ticket. Instructions: Round your answers to 2 decimal places. a. What is the effect of price discrimination on consumer and aggregate surplus? CS=$ AS = $ b. What is the effect without price discrimination on consumer and aggregate surplus? CS = $ AS = $arrow_forward
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