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.

Solutions

Expert Solution

Demand= 120-2p

In monopoly, If MR=MC then their is profit maximization

MR = derivatite of Demand function with respect to p

a) MR= d/dp (120-2p)

=0-2 = -2

so MR= -2 and MC=0 (given)

so the monopolist's magnitude of welfare loss is 2

b) Now MC= 10

MR= -2

Profit= MR-MC = -2 - 10 = -12, so magnitude of welfare loss increases to 12 from 2.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

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

A monopolist with marginal cost of MC=Q faces a demand curve of QD = 20 -...

A monopolist with marginal cost of MC=Q faces a demand curve of QD = 20 - 2P. This implies that P = 10 - (1/2)Q and that the marginal revenue is MR = 10 - Q. a. Sketch demand, marginal revenue, and marginal cost curves. b. What quantity and price will the monopolist set? c. What quantity and price would the monopolist set if it produced at the efficient market outcome where P=MC? d. Identify the CS, PS and DWL...

1) Consider a monopolist with demand Q = 120-2p and marginal cost MC = 40. Determine...

1) Consider a monopolist with demand Q = 120-2p and marginal cost MC = 40. Determine profit, consumer surplus, and social welfare in the following three cases: a)single-price monopolist b)perfect price discrimination c)Consider that the firm is operating in a perfectly competitive market. Find the profit, consumer surplus, and social welfare under this situation. Show this study graphically.

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q= 200-2P MR=100-Q TC=5Q MC=5

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q= 200-2P MR=100-Q TC=5Q MC=5a) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?b) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price?c) Suppose that a tax of $5 for each unit produced is...

A monopolist faces a demand curve of P = 120 – Q, and has costs of...

A monopolist faces a demand curve of P = 120 – Q, and has costs of C = 50 + 20Q. The monopolist sets a uniform price to maximize profits. Group of answer choices a) All of the answers are correct. b)The profit-maximizing price is 70. c)Deadweight loss is 1250. d) Producer surplus is 2500.

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 market demand for a good is Q = 480 - 2p. The marginal cost...

Suppose that market demand for a good is Q = 480 - 2p. The marginal cost is MC = 2Q. Calculate the following in the context of a monopoly market. a) Profit maximizing price and quantity. b) Market power. c) Consumer surplus and producer surplus. d) Dead Weight Loss (DWL).

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost...

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 a) suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output? b) suppose that a tax of $5 for each unit produced is imposed by state government. What is the price...

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost...

A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 ; MR = 100-Q ; TC = 5Q ; MC = 5 a) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output? b) Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing...

A monopolist faces the following demand curve, marginal revenue, total cost curve and marginal cost curve...

A monopolist faces the following demand curve, marginal revenue, total cost curve and marginal cost curve for its product: Q = 200 - 2P ; MR = 100 - Q ; TC = 5Q ; MC = 5 a) What level of output maximizes total revenue?. b) What is the profit maximizing level of output?. c) What is the profit maximizing price?. d) How much profit does the monopolist earn? e) Suppose that a tax of $5 for each unit...

Subjects