Suppose a market is served by a monopoly manufacturer selling to a single customer. The customer’s...

Suppose a market is served by a monopoly manufacturer selling to a single customer. The customer’s inverse demand is given by P = 50 − (1/10)Q. The monopoly’s marginal cost is constant at 20, and there are no fixed costs. Show your work for each question below.

(a) If the monopoly can only charge a single price, what price does it charge? What are its profits?

(b) Now suppose the monopoly can use a two-part tariff. Find the values of the fixed fee, f, and price per unit, p, that maximize its profits.

(c) Next, suppose a customer joins the market who is willing to pay $80 per unit for up to 90 units (i.e., demand is perfectly elastic at $80 up to a quantity of 90). If the monopoly charges the f and p you found in (b), what are its profits now?

(d) Suppose the monopolist continues to use a single two-part tariff when selling to both customers. Provide an example of a fixed fee, f 0 , and price per unit, p 0 , that bring the monopolist higher profits than in (c). Proceed carefully and explain in words why the change helps to increase profits,

Expert Solution

Rahul Sunny answered 7 months ago

Consider a market that is served by a single producer. Suppose you are told that the...

Consider a market that is served by a single producer. Suppose you are told that the producer has the following cost curves where TC is total cost measured in dollars, Q is the quantity, and P is the price of Q in dollars: Total Cost: TC = Q 2 Marginal Cost: MC = 2 Q Suppose you also know that the market demand curve is given by the following equation: Market Demand: Q = 96 – P 1. Determine the...

Suppose a given market is served by a monopoly with constant marginal cost, c. We know...

Suppose a given market is served by a monopoly with constant marginal cost, c. We know that 1st degree price discrimination increases total surplus compared to the outcome where the monopoly charges a single price, pm. One of the criticisms of this result is that price discrimination can be costly to the monopoly, e.g., because it must gather information on willingness-to-pay. Suppose the marginal cost with price discrimination rises to c' > c. Explain with words and a diagram whether...

Monopoly is a market structure characterized by a single seller,selling a unique product in the...

Monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. Monopoly typically has an unfair advantage since they are either the only provider of a product or control most of the market share or customers for the product. Although monopolies might differ from industry-to-industry, they tend to share similar characteristics. Discuss at...

Monopoly is a market structure characterized by a single seller, selling a unique product in the...

Monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. Monopoly typically has an unfair advantage since they are either the only provider of a product or control most of the market share or customers for the product. Although monopolies might differ from industry-to-industry, they tend to share similar characteristics. Discuss at...

The monopoly market structure is characterized by a single seller, selling a product with no close...

The monopoly market structure is characterized by a single seller, selling a product with no close substitutes in a market where there is some sort of barrier to entry. Evaluate the statement: A monopolist is a price-maker because this firm can charge whatever price it desires. What market conditions may challenge this statement? Must be a thorough answer with at least 12 sentences.

Assume now that the market in Question 2 is served by a profit maximizing monopoly. The...

Assume now that the market in Question 2 is served by a profit maximizing monopoly. The firm is sufficiently large that its marginal cost is equal to the market supply curve in Scenario 3a. Therefore, market demand is still P = 150 - .05Q and the monopoly firm’s MC = 0.45Q + 10. The monopoly has marginal revenue MR = 150 - Q. The monopoly is a large well run firm with a short run average total cost of ATC...

1.Suppose that the campus bookstore has a monopoly on selling textbooks. The market demand is given...

1.Suppose that the campus bookstore has a monopoly on selling textbooks. The market demand is given by P = 129 – 1.5Q and the marginal revenue is MR = 129 – 3Q. The marginal cost of selling textbooks is MC = 1 + Q. What is the profit-maximizing price the monopolist should charge for the textbooks and how many will they sell? Price: $ Quantity: 2.Waste Services has a natural monopoly on trash pickup services to households in a local...

Explain what benefits might exist if a market is served by a monopoly rather than by...

Explain what benefits might exist if a market is served by a monopoly rather than by many competitive firms. (Include at least 3 benefits).

Suppose that a market could be either a monopoly or acompetitive market. Suppose that in either...

Suppose that a market could be either a monopoly or a competitive market. Suppose that in either case the demand curve can be written as Qd= 100-2P. Suppose further that the marginal cost of production is the same in either case. This means that the supply curve in the competitive market is the same as the marginal cost curve for the monopoly. So the supply curve is Qs= -20+P and, rearranging the terms, the marginal cost of the monopolist is MC= 20+Q.What is the...

Problem 5: Suppose that a market could be either a monopoly or a competitive market. Suppose...

Problem 5: Suppose that a market could be either a monopoly or a competitive market. Suppose that in either case the demand curve can be written as ?d = 100 − 2?. Suppose further that the marginal cost of production is the same in either case. This means that the supply curve in the competitive market is the same as the marginal cost curve for the monopoly. So the supply curve is ?s = −20 + ? and, rearranging the...

Question