Question

Suppose Demand for Apples (in bushels) is given by Q = 90-P and Supply is given by Q = P. The market for apples is dominated by a single, monopolistic firm "NYC Apples".

a) What is NYC Apples profit at the monopoly price?

b) How much more will consumers pay for Apples with NYC Apples being a monopoly compared to if it were a perfectly competitive market?

c) Suppose you could regulate the market for Apples and impose a price ceiling. What price would maximize social welfare (combined producer and consumer surplus)

Answer 1

This given quesion is a part of monoploly market In this market there is only one seller. Price discrimination is an important feature of this market.

As per equation -

Q= 90 - P ( Demand )

Q=P ( Supply )

Therefore, by sustituting Q in place of P, as given in supply equation.

Q= 90 - Q

2Q=90

Q= 90/2

Q= 45

By putting value of Q, then -

P = 45

a- NYC Apples profit at the monopoly price will be 45.

b - As we know that under this market, price discrimination is possible. So in order to earn huge profit ( which is a features of monopoly firm ), Monopolist can charge more price from the buyer, as this product is an agricultural product, which has less elastic demand in market. but if this product is sell in the perfectly competitive market, so the buyer will not pay more than $45. As in perfectly competitive market, price rigidity is a feature and due to tough competition in market, seller cannot charge extra prices from buyers and buyers will not pay extra price.

c - In order to regulate this market, the value of price celing should be the equilibrium value, where buyers and sellers both are agree for buying or selling of goods or services. So the price ceiling price should be $45. As price ceiling fixed the maximum price of goods.