A profit-maximizing monopolist operates with an inverse demand curve P = 20 − Q and an associated marginal revenue MR = 20 − 2Q.

A profit-maximizing monopolist operates with an inverse demand curve P = 20 − Q and an associated marginal revenue MR = 20 − 2Q. Marginal cost of production is constant at MC = 4. Assume they have to sell each unit of output for the same price.

a) Find the monopolist’s optimal choice of output and the socially efficient output.

b) Sketch demand, marginal revenue, and marginal cost. Indicate on your diagram the points you found in part a).

c) What is the amount of deadweight loss at the monopolist’s optimal choice? If a buyer is willing to pay more than marginal cost for the next unit beyond the monopolist’s choice of output, why doesn’t the monopolist choose to produce and sell that unit?

Expert Solution

Rahul Sunny answered 2 years ago

A profit-maximizing monopolist operates in market with an inverse demand curve given by P = 20...

A profit-maximizing monopolist operates in market with an inverse demand curve given by P = 20 − Q and an associated marginal revenue MR = 20 − 2Q. Their marginal cost of production is constant at MC = 4. Assume for now that they have to sell each unit of output for the same price. a) Find the monopolist’s optimal choice of output and the socially efficient output. b) Sketch demand, marginal revenue, and marginal cost. Indicate on your diagram...

A monopolist faces an inverse demand of P(Q) = 250−2Q and constant marginal costs. a) Calculate...

A monopolist faces an inverse demand of P(Q) = 250−2Q and constant marginal costs. a) Calculate the optimal price, quantity and total revenues, for MC = 10 and MC = 30. b) Repeat question a) under perfect competition with constant marginal costs for MC = 10 and MC = 30. c) Discuss how the marginal cost increase from 10 to 30 affects revenue in the monopoly case vs perfect competition. Relate your answer to the price elasticity of demand d)...

Suppose that a monopolist whose marginal cost curve is MC(Q)=Qfaces the demand curve P=10-2Q.

Suppose that a monopolist whose marginal cost curve is MC(Q)=Q faces the demand curve P=10-2Q. What is monopolist's profit-maximizing quantity, profit-maximizing price, the total surplus (under monopoly profit maximization), also called the "monopoly market surplus," and if the monopolist can perfectly price discriminate, then deadweight loss equals...?

1. Demand: P=120-Q Total Cost: TC=Q2 Marginal Revenue: MR=120-2Q Marginal Cost: MC=2Q What is the amount of profit...

1. Demand: P=120-Q Total Cost: TC=Q2 Marginal Revenue: MR=120-2Q Marginal Cost: MC=2Q What is the amount of profit for this monopolist? 2. Demand: P=120-Q Total Cost: TC=Q2 Marginal Revenue: MR=120-2Q Marginal Cost: MC=2Q For this monopolist, the profit-maximizing price is ________ and the profit-maximizing quantity is _________. 3. Demand: P=120-Q Total Cost: TC=Q2 Marginal Revenue: MR=120-2Q Marginal Cost: MC=2Q Compared to perfect competition where P=MC, what is the amount of deadweight loss caused by this monopolist _________.

1) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14...

1) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14 -2Q, and marginal cost, MC = 2 + Q. The price that the profit maximizing monopolist sets is $_ per unit. ____ 2) Suppose inverse demand equation, P = 14 - Q, and marginal revenue, MR = 14 -2Q, and marginal cost, MC = 2 + Q. What quantity does a profit maximizing monopolist produce? _____

A monopolist serves market A with an inverse demand curve of P = 12 – Q....

A monopolist serves market A with an inverse demand curve of P = 12 – Q. The marginal cost is constant at $2. Suppose the monopolist uses a two-part tariff pricing. What price does the monopolist set? What is the entrance fee? What is the deadweight loss? What is consumer surplus?

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...

Assume a profit maximizing monopolist faces the following demand, marginal revenue and cost functions:

Assume a profit maximizing monopolist faces the following demand, marginal revenue and cost functions: Demand: P = 400 - 50Q Total Cost: TC = 100Q Marginal cost MC = 100 Marginal Revenue MR = 400 – 100Qa) Find the profit maximizing output level for the monopolist.b) At this level of output what price will the monopolist charge?c) What is the total profit for the monopolist?d) If the monopolist were a revenue maximizer instead of a profit maximizer, what would be...

The inverse market demand curve for protocol droids is P = 4,000 – 2Q, where Q...

The inverse market demand curve for protocol droids is P = 4,000 – 2Q, where Q is the quantity of protocol droids and P is the market price. Protocol droids can be produced at a constant marginal cost of $1,000, and all protocol droids are identical. a. Suppose the market for protocol droids is served by two firms that form a cartel and evenly split the market output. What are the market output and price level? b. Suppose the market...

Given the demand curve for a monopolist: Qd= 60 -2 P and the marginal revenue curve:...

Given the demand curve for a monopolist: Qd= 60 -2 P and the marginal revenue curve: MR = 30 -Q. Marginal cost equals average cost at $14. What is the price and quantity that the profit-maximizing monopolist will produce? Graph these curves andlabel theequilibrium points. b) Ifthis were a competitive industry, what price and quantity would be produced? Show this on the above graphand show your work (answers) below. c) What is the monopolist's profit? What is the consumer surplus...

Question