Question

In: Economics

3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal...

3. James is a producer in a monopoly industry. His demand curve, total revenue, curve, marginal revenue curve and total cost curve are given as follows:

Q=100-4P

TR=25Q-0.25Q2

MR=25-0.5Q

TC=6Q

MC=6

a.How much output will James produce?

b. What price will James charge per unit of output?

c. How much profit will James make?

d. If this was a competitive firm. Calculate the profit maximizing price and quantity and compare with price and quantity under monopoly.

e. Calculate the amount of deadweight loss incurred because James is a monopolist and not perfectly competitive firm.

Solutions

Expert Solution

a) Setting MR=MC

25-0.5Q=6

25-6=0.5Q

Q=19/0.5 = 38

b) As Q=100-4P

100-4P=38

100-38=4P

P=62/4= 15.5

C) TR=38*15.5 = 589

TC=6(38) = 228

Profit = TR-TC = 589-228 = 361

d) Setting P=MC

Q=100-4P or P=100-Q/4 = 25-0.25Q

25-0.25Q=6

Q=19/0.25 = 76

P=MC=6

e) DWL = 0.5*(76-38)*(15.5-6)

=180.5

Rahul Sunny answered 2 years ago
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