Monopco is a monopolist in the market for widgets, Q. The market demand curve for widgets...

Monopco is a monopolist in the market for widgets, Q. The market demand curve for widgets is given by p=24-Q, and its marginal revenue curve is MR=24-2Q. It also has average total cost curve ATC=Q and marginal cost curve MC=2Q. (a)Draw an accurate diagram showing Monopco’s D, MR, MC and ATC curves. (b) Find how many widgets Monopco produces, and the price it charges per widget. Compare these to the “efficient” price and quantity. (c) Calculate the profits earned by Monopco, the consumers’ surplus to buyers and the DWL created in the market. Show these areas on your diagram from (a). (d) Suppose for some reason Monopco lowered its price by $2. a. Using the midpoint method, calculate the price elasticity of demand for the drop in price from the monopoly-price to the one $2 lower. b. Show that total revenue must rise if it drops its price. Explain in words how this revenue increase is related to demand elasticity.

Expert Solution

Rahul Sunny answered 2 years ago

Example 4: Suppose that the monopolist faces a demand curve for its widgets as q =...

Example 4: Suppose that the monopolist faces a demand curve for its widgets as q = 9 - 0.2p. The firm’s marginal revenue and cost functions are: MR(q) = 45 – 10q and MC(q) = 15 + 5q. The firm’s total cost function is C(q) = 2.5q2 + 15q + 3. How many widgets should the firm produce and sell so that the monopolist can maximize its profits? How much should the firm charge to each of its customers so...

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?

A monopolist has a marginal cost curve MC=Q and a home market demand P=30-Q. The monopolist...

A monopolist has a marginal cost curve MC=Q and a home market demand P=30-Q. The monopolist can also sell in a foreign market at a price pf Pf=12. Find and graph the quantity produced, quantity sold at home, and quantity sold in the foreign market, as well as the price charged at-home market. Explain why the monopolist's profits would fall if it were to produce the same quantity but sell more in the home market.

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?

Suppose that the retail market for widgets has inverse demand curve P = 100 – Q....

Suppose that the retail market for widgets has inverse demand curve P = 100 – Q. Widget retailing is controlled by a monopoly retailer, R Inc., which obtains its widgets from the monopoly wholesaler W Inc. at a wholesale price of w per widget. In addition R Inc. incurs a cost of $2 per widget to promote the product and sell to consumers. Wholesaler W Inc. obtains the widgets in from monopoly manufacturer M Ltd. at a manufacturing price of...

Suppose a monopolist faces a market demand curve Q = 50 - p. If marginal cost...

Suppose a monopolist faces a market demand curve Q = 50 - p. If marginal cost is constant and equal to zero, what is the magnitude of the welfare loss? If marginal cost increases to MC = 10, does welfare loss increase or decrease? Use a graph to explain your answer

Suppose a monopolist faces a market demand curve Q= 120 - 2p. a. If marginal cost...

Suppose a monopolist faces a market demand curve Q= 120 - 2p. a. If marginal cost is constant and equal to zero, what is the magnitude of the welfare loss? b. If marginal cost increases to MC= 10, does welfare loss increase or decrease? Use a graph to explain your answer.

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...

A monopolist faces a market demand curve of q=100-p. The monopolist’s cost function is given by...

A monopolist faces a market demand curve of q=100-p. The monopolist’s cost function is given by (q) = 3000 + 20q. a) If the monopolist can perfectly price discriminate, how many units will be sold? b) If the monopolist can perfectly price discriminate, how much consumer surplus will there be? c) If the monopolist cannot price discriminate, how much consumer surplus will there be? (For this question, think long run.)

A monopolist has a demand curve given by P = 120 - Q and a total...

A monopolist has a demand curve given by P = 120 - Q and a total cost curve given by TC = 50 +2Q2. The associated marginal cost curve is MC = 4Q. Suppose the monopolist also has access to a foreign market in which he can sell whatever quantity he chooses at a constant price of 88. How much will he sell in the foreign market? What will his new quantity and price be in the original market?

Question