Question

Question 4

a.The market demand for mineral water is given as follow: Q = 200 − 2P

i. Firm A is the only producer in the market and the marginal cost to produce a bottle of mineral is 40. What is the profit maximizing price and output level?

ii. What is the consumer surplus and produce surplus if Firm A practices first degree price discrimination?

iii. Firm B has also entered the market and produce the same mineral water as Firm A. The marginal revenue for each of the firms are shown as follow:

MR_A = 100 − Q_A − 0.5Q_B

MR_B = 100 − Q_B − 0.5Q_A

What is the output level and price under Cournot equilibrium?

b. Firm H is the only honey seller in the market. It is currently selling its honey with a price of $180 and the output level is units. The marginal cost at the current output level is $90 and the demand elasticity is -4. Comment if the current product price level is profit maximizing. If yes, calculate the profit level for the monopoly. If not, calculate the profit maximizing product price level.

Answer 1