Question

In: Economics

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 . a) Assume...

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 .

a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge.

b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (a)? Interpret your answer.

c) Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? −3 . Assume that the total cost function is ??(?) = 5 + 2? 2 . Use the inverse elasticity pricing rule (IEPR) to obtain the profit-maximizing price that this monopolist should charge.

d) How would your result in part (c) change if the demand curve changes to ?(?) = 12? −5 , but still assuming the same cost function as in part (c)? Interpret your answer.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 . a) Assume...
Consider a monopolist facing a constant elasticity demand curve ?(?) = 12? ^−3 . a) Assume that the total cost function is ??(?) = 5 + 4?. Use the inverse elasticity pricing rule (IEPR) to obtain the profit maximizing price that this monopolist should charge. b) How would your result in part (a) change if the demand curve changes to ?(?) = 12? ^−5 , but still assuming the same cost function as in part (a)? Interpret your answer. c)...
Problem: The demand curve facing the monopolist has a constant elasticity of 2. (a) What will...
Problem: The demand curve facing the monopolist has a constant elasticity of 2. (a) What will be the monopolist’s markup on marginal cost? (b) The government is considering subsidizing the marginal costs of this monopolist. What level of subsidy should the government choose if it wants the monopolist to produce the socially optimal amount of output?
The following table shows the demand curve facing a monopolist who produces at a constant marginal...
The following table shows the demand curve facing a monopolist who produces at a constant marginal cost of $10: Price Quantity 18 0 16 4 14 8 12 12 10 16 8 20 6 24 4 28 2 32 0 36 a) Calculate the firm’s marginal revenue curve. b) What are the firm’s profit-maximizing output and price? What is its profit? c) What would the equilibrium price and quantity be in a competitive industry? d) What would the social gain...
The following table shows the demand curve facing a monopolist who produces at a constant marginal...
The following table shows the demand curve facing a monopolist who produces at a constant marginal cost of $10: Price Quantity 18 0 16 4 14 8 12 12 10 16 8 20 6 24 4 28 2 32 0 36 a) Calculate the firm’s marginal revenue curve. b) What are the firm’s profit-maximizing output and price? What is its profit? c) What would the equilibrium price and quantity be in a competitive industry? d) What would the social gain...
Monopoly with linear inverse demand. Consider a monopolist facing a linear inverse demand curve p(q)= a-...
Monopoly with linear inverse demand. Consider a monopolist facing a linear inverse demand curve p(q)= a- bq, and cost function C(q)= F + cq, where F denotes its fixed costs and c represents the monopolist's (constant) magical cost a>c 1. Graph demand, marginal revenue and marginal cost. Label your graph carefully, including intercepts 2. Solve the profit maximizing output q^m. To do this, first write down the expression for MR=MC and solve for the optimal quantity. Next find the price...
A monopolist is facing the following demand curve P = 50 − 5Q. The monopolist has...
A monopolist is facing the following demand curve P = 50 − 5Q. The monopolist has the following marginal cost MC = 10. The monopolist knows exactly the willingness to pay of each individual consumer and charge consumers individual prices. Calculate the monopolist’s profit (assuming FC=0). (a) π=40 (b) π=80 (c) π = 160 (d) None of the above.
Consider the constant elasticity Cournot example from class. Two firms are facing market demand D(P) =...
Consider the constant elasticity Cournot example from class. Two firms are facing market demand D(P) = A/P^ε . Firms have constant marginal costs c1 and c2 respectively. Derive the expression for the equilibrium market power m1 of firm 1. If c1 = c2, then how does m1 depend on ε?
A monopolist faces an isoelastic demand curve with price elasticity ??(?) = −1.5. The monopolist’s marginal...
A monopolist faces an isoelastic demand curve with price elasticity ??(?) = −1.5. The monopolist’s marginal cost of production is constant and equal to ?. The price given the monopolist’s profit maximizing choice of output equals ? ∗ = 42. Calculate the monopolist’s marginal cost ?.
Consider a monopolist facing a constant marginal cost of MC = $10 per unit and a...
Consider a monopolist facing a constant marginal cost of MC = $10 per unit and a demand curve of P = 200 – 2q for each individual consumer. If the monopolist has zero fixed costs, what are its profit and the resulting deadweight loss? How does your answer change if the monopolist also has a fixed cost of $4000? b. Now the monopolist faces a potential competitor. If the consumer switches to buy the product from the entrant the consumer...
Suppose that a Örm faces a demand curve that has a constant elasticity of 2.
Suppose that a Örm faces a demand curve that has a constant elasticity of 2. This demand curve is given by q = 256=P2. Suppose also that theÖrm has a marginal cost curve of the form MC = 0:001q.a) Graph these demand and marginal cost curves.b) Calculate the marginal revenue curve associated with the demandcurve; graph the curve.c) At what output level does marginal revenue equal marginal cost?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT