Question

In: Economics

Question 5 [20 marks] Foursome Inc. is the monopolist in the four-toe socks market. The product...

Question 5 [20 marks] Foursome Inc. is the monopolist in the four-toe socks market. The product does not sell very well, but some people buy it as a present for their in-laws. In particular, the market demand is given by P = 24 − Q

where P and Q are the market price and quantity of four-toe socks, respectively. The cost function of producing q units is given by the cost function c(q) = 5q^2 . Foursome Inc. practises simple monopoly pricing.

(a) Find the profit-maximising price and quantity for Foursome Inc.

(b) Calculate the profit of Foursome Inc.

(c) Calculate the dead-weight loss associated with the monopoly power of Foursome Inc.

Solutions

Expert Solution

a.)

The cost is given as. -

This means the marginal cost will be given as -

Given the market demand function, since the company is a monopolist, his individual demand function is also the same -

This is the Average revenue curve. We get total revenue as -

From TR, we can calculate the MR as. -

Now, equating MR and MC to find equilibrium price and quantity -

Substituting value of q in the AR equation to get the price -

b.)

The profit is given as the difference between the TR and TC. We get -

c.)

The dedweight loss due to the monopoly can be calculated using the following formula -

This means we take the average of the change in quantity and the change in price, from the perfect competition values.

In perfect competition, we have the MR=MC as the pricing condition as well, and the AR=MR=P

Hence, we get -

Therefore,


Related Solutions

Question 2.2 (15 Marks) Socks Ltd manufactures socks and legwarmers and wants to expand its product...
Question 2.2 Socks Ltd manufactures socks and legwarmers and wants to expand its product line. The management of the company has indicated that a new machine is required to manufacture a new line of brightly coloured socks. To purchase the machine, it has negotiated financing with a favourable before tax cost of 9% interest per annum with equal annual instalments. Alternatively, the company can enter into a direct financial lease with the manufacturer of the machine, which means that the...
Question 2 [1 marks each/20 marks] True or false 5) In an unregulated competitive market, the...
Question 2 [1 marks each/20 marks] True or false 5) In an unregulated competitive market, the presence of marginal external cost of a good or service results in overproduction. 6) A marginal external cost is the cost of producing an additional unit of a good that falls on the producer. 7) Young drivers often buy used cars. An increase in the legal driving age to twenty-one shifts the demand curve for used cars leftward, whereas lowering the age to fifteen...
Question 2 [1 marks each/20 marks] True or false 5) In an unregulated competitive market, the...
Question 2 [1 marks each/20 marks] True or false 5) In an unregulated competitive market, the presence of marginal external cost of a good or service results in overproduction. 6) A marginal external cost is the cost of producing an additional unit of a good that falls on the producer. 7) Young drivers often buy used cars. An increase in the legal driving age to twenty-one shifts the demand curve for used cars leftward, whereas lowering the age to fifteen...
QUESTION 5 (20 Marks) 5.1 List FIVE (5) requirements for perfect competition to exist. (5 marks)...
QUESTION 5 5.1 List FIVE (5) requirements for perfect competition to exist. 5.2 Explain why any firm maximises profit, or minimises losses, when marginal cost is equal to marginal revenue. 5.3 Explain the shape of the marginal revenue curve facing (a) a perfectly competitive firm and (b) a monopolistic firm.
QUESTION 5 (20 Marks) 5.1 List FIVE (5) requirements for perfect competition to exist. (5 marks)...
QUESTION 5 5.1 List FIVE (5) requirements for perfect competition to exist. 5.2 Explain why any firm maximises profit, or minimises losses, when marginal cost is equal to marginal revenue. 5.3 Explain the shape of the marginal revenue curve facing (a) a perfectly competitive firm and (b) a monopolistic firm. (10 marks
QUESTION 4 Regression Analysis Guide to marks: 20 marks – 5 for a, 10 for b,...
QUESTION 4 Regression Analysis Guide to marks: 20 marks – 5 for a, 10 for b, 3 for c, 2 for d Belinda, the accountant at Murray Manufacturing Company wants to identify cost drivers for support overhead costs. She has the impression that the staff spend a large part of their time ensuring that the equipment is correctly set up and checking the first units of production in each batch. Deborah has collected the following data for the past 12...
QUESTION 3 Regression Analysis Guide to marks: 20 marks – 5 for a, 10 for b,...
QUESTION 3 Regression Analysis Guide to marks: 20 marks – 5 for a, 10 for b, 3 for c, 2 for d Belinda, the accountant at Murray Manufacturing Company wants to identify cost drivers for support overhead costs. She has the impression that the staff spend a large part of their time ensuring that the equipment is correctly set up and checking the first units of production in each batch. Deborah has collected the following data for the past 12...
describe efficient market hypothesis and weaknesses of the theory? 20 marks question..
describe efficient market hypothesis and weaknesses of the theory? 20 marks question..
QUESTION FIVE (20 MARKS) (a)      Explain any four characteristics of accounting.             [8 marks] (b)      Discuss the...
QUESTION FIVE (a)      Explain any four characteristics of accounting.             [8 marks] (b)      Discuss the users of accounting information.                [12 marks]
QUESTION 3 (20 Marks) With the aid of a diagram, discuss market equilibrium for a public...
QUESTION 3 With the aid of a diagram, discuss market equilibrium for a public good in a hypothetical economy with two individuals who consume that public good assuming those individuals reveal their preference for that public good. QUESTION 4 Discuss Nozick’s three “principles of justice” for a just distribution of income. In your discussion, include other Pareto criteria for policies aimed at redistributing income from rich to poor. QUESTION 5 “The most common social choice rule is the “ordinary” majority...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT