Question

1) Apple was effectively a monopolist in the tablet computer market in the spring of 2010. You could go for the iPad or, well, the iPad. It didn’t even come in a choice of colors. Suppose the marginal cost of producing iPads is constant at $200, and the inverse demand curve for iPads is P = 1,000 – 5Q (where Q in millions and P in dollars). The associated marginal revenue is MR = 1,000 – 10Q.

1. How much should Apple charge, and how many will it sell at that price?
2. Compute the consumer surplus and Apple’s producer surplus. (It is helpful if you draw the demand and MC curves first. Recall that CS is the area under demand curve and above the price. PS is the area below the price and above the MC).
3. Now let’s think about how market would look like if Apple behaved like a competitive firm and priced at marginal cost. How many iPads will Apple? Compute the new consumer surplus and Apple’s producer surplus.
4. Compute the value of the “deadweight loss” from monopolization? (Note: One method, use the producer and consumer surpluses you found in parts (b) and (c). Another method, compute the DWL directly by finding the area of the triangle).
5. Draw your results you found in parts (a) – (d) in one P-Q space.
6. Suppose a government regulatory agency sets a price ceiling of $400 per iPad. How many iPads will Apple sell, and what will be its producer surplus?
7. Compute and compare the degrees of monopoly power (Lerner Index) for cases in (a), (c), and (f).
8. Suppose, instead of price ceiling, government imposes a per unit tax of $200. Find the Apple’s price, quantity and producer surplus for iPad.

I have a - e I just need help on f - h

Answer 1