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?

Solutions

Expert Solution

In a two part tariff, the monopolist equates P =MC and then charges the entire consumer surplus as the entry fee with MC being the per unit fees.

P = MC

12 - Q = 2

Q = 10

Consumer surplus = area above the price line and below the demand line = 1/2* (12-2) 10 = $50

Therefore, the monopolist charges $50 as the entrance fee and $2 as per unit price. The deadweight loss is 0 in this case as the entire surplus goes to the monopolist.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

1. A monopolist serves market A with an inverse demand curve of P = 12 -...

1. A monopolist serves market A with an inverse demand curve of P = 12 - Q. Another monopolist serves market B with an inverse demand curve of P = 22 - 2Q. Suppose that both monopolists have a constant marginal cost of $2. What is the producer surplus earned by the monopolist serving market A? 2. A monopolist serves market A with an inverse demand curve of P = 12 - Q. Another monopolist serves market B with an...

A monopolist faces a market (inverse) demand curve P = 50 − Q . Its total...

A monopolist faces a market (inverse) demand curve P = 50 − Q . Its total cost is C = 100 + 10Q + Q2 . a. (1 point) What is the competitive equilibrium benchmark in this market? What profit does the firm earn if it produces at this point? b. (2 points) What is the monopoly equilibrium price and quantity? What profit does the firm earn if it produces at this point? c. (2 points) What is the deadweight...

If P=36-Q is the inverse demand curve and AC=MC=12 then under a monopolist CS=........, PS=........ and...

If P=36-Q is the inverse demand curve and AC=MC=12 then under a monopolist CS=........, PS=........ and DWL=............

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...

Consider a Monopolist where the inverse market demand curve for the produce is given by P...

Consider a Monopolist where the inverse market demand curve for the produce is given by P = 520 − 2Q. Marginal Cost: MC =100 + 2Q and Total Cost: 100 .50 2 TC = Q + Q + [1 + 1 + 1 = 3] Calculate: (a) Profit Maximizing Price and Quantity. (b) Single Price Monopolist Profit. (c) At the profit maximizing quantity, what is the Average Total Cost (ATC) for the Consider a Monopolist where the inverse market demand...

The inverse market demand curve for a duopoly market is p=14-Q=14-q₁-q₂, where Q is the market...

The inverse market demand curve for a duopoly market is p=14-Q=14-q₁-q₂, where Q is the market output, and q₁ and q₂ are the outputs of Firms 1 and 2, respectively. Each firm has a constant marginal cost of 2 and a fixed cost of 4. Consequently, the Nash-Cournot best response curve for Firm 1 is q₁=6-q₂/2. A. Create a spreadsheet with Columns titled q₂, BR₁, Q, p, and Profit₁. In the first column, list possible quantities for Firm 2, q₂,...

A monopolist with the cost function C(q) = q faces the market demand curve p =...

A monopolist with the cost function C(q) = q faces the market demand curve p = 101 -2q. What is the maximum amount the monopolist is willing to pay for advertising that shifts its demand curve to p = 101-q?

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...

For a Monopolist, the inverse demand function is P=80 – Q (Or, the Demand function is...

For a Monopolist, the inverse demand function is P=80 – Q (Or, the Demand function is Q = 80 – P, if you prefer). The firm’s total cost function is 20 + 5Q + .5Q2. Identify profit maximizing quantity and price Q = _____, P = _____ Graph the relevant curves in the area provided (Hint: If you have difficulty drawing the graph, try plotting a couple of points along the curve) Identify CS and PS in the graph Calculate...

Suppose a monopolist facing a downward sloping inverse demand curve p(q) sets prices and quantity (p...

Suppose a monopolist facing a downward sloping inverse demand curve p(q) sets prices and quantity (p ∗ , q∗ ). Show that the area between the demand curve and the marginal revenue curve equals the consumer surplus.

Subjects