Question

In: Economics

Suppose a monopoly can produce any level of output it wishes at a constant marginal (and...

Suppose a monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per unit. Assume the monopoly sells its goods in two different markets separated by some distance. The demand curve in the two markets are given by

FIRM1 : Q1 = 55 − P1

FIRM2 : Q2 = 70 − 2P

a) How would your answer change if it costs demanders only $5 to transport goods between the two markets? What would be the monopolist’s new profit level in this situation? (FINDING THIS QUESTION PARTICULARLY HARD)

b) How would your answer change if transportation costs were zero and then the firm was forced to follow a single-price policy?

c) Suppose the firm could adopt a linear two-part tariff under which marginal prices must be equal in the two markets but lump-sum entry fees might vary. What pricing policy should the firm follow?

Solutions

Expert Solution


Related Solutions

Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal...
Suppose a textbook monopoly can produce any level of output it wishes at a constant marginal (and average) cost of $5 per book. Assume that the monopoly sells its books in two different markets that are separated by some distance. The demand curve in the first market is given by Q_1=55- P_1 and the curve in the second market is given by Q_2=70-2P_2 Remember sometimes is easier to work with inverse demand functions. First assume that the monopolist can charge...
Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to...
Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by: QE = 4,000,000 ? 100PE and QU = 1,000,000 ? 20PU where the subscript E denotes Europe and the subscript U...
Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to...
Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what process and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by QE = 4,000,000 – 100PE And QU = 1,000,000 – 20PU Where the subscript E denotes Europe, the subscript U denotes...
Your firm A is a monopoly in a particular market. You can produce at constant marginal...
Your firm A is a monopoly in a particular market. You can produce at constant marginal cost of $50 for every additional unit you produce. You have avoidable fixed costs of $6,000 per year. You face a market demand curve given by Q = 540 – 2P, where Q is the number of units sold per year, and P is the price per unit. a. What is the equation of your marginal revenue curve? b. What is your firm’s profit-maximizing...
Suppose a firm is producing a level of output such that marginal revenue is equal to...
Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $6 per unit and is incurring average variable costs of $7 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm: Group of answer choices is operating at maximum total profit is operating at a loss that could be reduced by shutting...
Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level...
Suppose a perfectly competitive paper firm can produce 10 tons of paper at an output level where marginal revenue is equal to marginal cost. The price per ton of paper is $80 and the average total cost is $95. Suppose the total fixed cost = $100. How much is the profit if the firm shuts down?
(Monopoly) Any firm in the market for tiddlywinks has constant marginal cost, M C = 30,...
(Monopoly) Any firm in the market for tiddlywinks has constant marginal cost, M C = 30, and no fixed costs. The market’s demand curve is given by D(p) = 4000 − 40p. A) (Perfect Competition) If there is perfect competition, what are the equilibrium price and total quantity sold in the market, p∗ and Q∗? Does a firm in the market earn any (nonzero) profits? B) Now consider a monopolist. What is the monopolist’s marginal revenue function, M R(Q)? C)...
A monopolist can produce at a constant average and marginal cost of ATC = MC =...
A monopolist can produce at a constant average and marginal cost of ATC = MC = $5. It faces a market demand curve given by Q = 53 - P. 5. Suppose there are N firms in the industry, all with the same constant MC = $5. Find the Cournot equilibrium. How much will each firm produce, what will be the market price, and how much profit will each firm earn? Also show that as N becomes large, the market...
Suppose that an economy has a constant nominal money supply, a constant level of real output...
Suppose that an economy has a constant nominal money supply, a constant level of real output Y = 1200, and a constant real interest rate r = 0.04, and it’s expected rate of inflation is 1%, i.e, πe = .01. Suppose that the income elasticity of money demand is ηY = 0.4 and the interest elasticity of demand ηi = –0.1. a. Suppose that Y decreases to 1140, r remains constant at 0.04 and there is no change in the...
Suppose a given market is served by a monopoly with constant marginal cost, c. We know...
Suppose a given market is served by a monopoly with constant marginal cost, c. We know that 1st degree price discrimination increases total surplus compared to the outcome where the monopoly charges a single price, pm. One of the criticisms of this result is that price discrimination can be costly to the monopoly, e.g., because it must gather information on willingness-to-pay. Suppose the marginal cost with price discrimination rises to c' > c. Explain with words and a diagram whether...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT