Question

Suppose that a city’s demand for hosting an Olympic Games is described by the demand curve P_D = 900 – 20Q, where Q is the number of Olympic events and P_D is measured in millions of dollars. (For example, to host 10 Olympic events, the city would be willing to pay $700 million.) The International Olympic Committee’s (IOC’s) marginal revenue from putting on Q events is MR = 900 – 40Q. The IOC’s marginal cost of putting on Q events is $100 million per event, so MC = 100.

If the IOC acts as a typical profit-maximizing monopolist, how many events would the city put on [1st blank], and at what price per event [2nd blank]? What is the consumer surplus of the city residents [3rd blank]? (Hint: A typical monopolist produces where MR = MC.)

Answer 1