Firm D is a monopolist that faces a market with inverse demand given by: P = 120-4Q Where Q is Firm D's output level. Firm D's total cost function is given by: TC(Q)= 11Q +42 Assuming that Firm D can perfectly (1st degree) price discriminate, what is Firm D's profit maximizing output level, Q (Hint: Because Firm D can perfectly price discriminate, its Marginal Revenue function is equivalent to inverse demand

Firm D is a monopolist that faces a market with inverse demand given by: P = 120-4Q Where Q is Firm D's output level. Firm D's total cost function is given by: TC(Q)= 11Q +42 Assuming that Firm D can perfectly (1st degree) price discriminate, what is Firm D's profit maximizing output level, Q (Hint: Because Firm D can perfectly price discriminate, its Marginal Revenue function is equivalent to inverse demand

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.5P

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You are a consultant who is advising a monopoly on the optimal pricing strategy. Your analysis has yielded the following information. • The marginal cost (MC) is $3. • The demand equation is P = 90 - 3Q . The total cost (TC) is given by 35+ 3Q The marginal revenue (MR) is given by 90 - 6Q Based on this information, answer the following questions. Show FULL calculations! (a) Following the concepts of profit maximization, what is the profit maximizing quantity for this monopoly? (b) Following the concepts of profit maximization, what is the profit maximizing price for this monopoly? (c) Following the concepts of profit maximization, what is the monopoly's profit at the profit maximization point?
Consider any market that has a demand curve given by: Qd = 240 - 2P. Where Qd is the total quantity demanded in the market, given in millions of units and P is the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market with Cmg = CVme = 15 and fixed monthly costs equal to 1,400. About this market, ask yourself: a) What is the profit of each of the oligopolists? b) Imagine that one of the companies managed to implement a process innovation capable of halving its Cmg and CVme, so that they would go from 15 to 7.5. This investment implies an additional monthly expense of $1,800. Discuss the statement: "If this situation occurs, the innovative company will not implement variable cost reduction, as the quantity supplied in the market will increase very little; prices will remain very close to what they are today and its profits will not increase"
10. Suppose that a monopolist faces a linear demand curve having a vertical intercept of (Q.a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter m (i.e., the line segment am is equal in length to the line segment bm). Denote the coordinates at point m by (Q*, P*). Now suppose that you overheard a student in ECON 2450 reason in the following manner: A profit-maximizing monopoly firm that sells all units that it produces at a uniform price. The firm would never produce more than Q* (or alternatively, will never charge a price below P*) since doing so reduce its total revenue as well as increasing its total cost. Even if the cost of production were negligibly small or even zero, the monopolist's profits would fall if it produced more than Q*." Is this argument correct? If so explain why. If not, explain why not.
8. A monopolist with cost function c(q) = q faces two consumers whose demand functions are given below. Q₁ = 100-P 50-P Q₂ (a) Suppose the monopolist is a uniform pricing firm (i.e.the monopolist can- not engage in any price discrimination). Find the firm's optimal pricing strategy. Calculate the firm's Lerner index. (b) What is the deadweight loss associated with this pricing strategy, if any? (c) Now, assume that price discrimination is possible. Find the monopolist's optimal second degree price-discrimination strategy. (d) Find the monopolist's optimal third degree price-discrimination strategy.
мсо 20 A profit-maximising firm produces homogenous (identical) units of output at a constant marginal cost and the units can be sold in two distinct market segments, which are segments A and B. On the assumption that the absolute value of the price elasticity of demand is lower in market segment A than it is in market segment B, if the firm decides to exercise price discrimination, we would expect to observe: A Ido not want to answer this question. В a higher price in market segment A to reflect the lower price elasticity the same price in both market segments since the marginal cost of production is the same for both markets and profits are maximised at MR = MC in both C markets D a higher price in market segment B to reflect the higher price elasticity E MR MC in market segment B because the higher elasticity allows a mark up of marginal revenue over marginal cost
a. Given the following demand functions for two market segments (in millions) P1 = 440 – 8Q1 P2 = 160 – 5Q2 TC = 500 +40Q Calculate the profit maximizing Quantities & corresponding Prices and profit level. Based on demand elasticities demonstrated that this monopolist is making use of the concept in its pricing strategy. b. Explain the reasoning behind the fact that a firm in a perfectly competitive market may continue to produce and sell its products at a loss within the short run but might not opt to do so in the long run. c. What factors in your view are behind monopoly power within markets and what in your view limits monopoly power within markets?
2. A market analysis employed by the "Sad Student Company" reveals that the number of lots of the game named "Handsome Killer: Revenge of the Teacher" ordered by the wholesalers when the game is offered at a price of dollars per lot is given by the formula: p=1500 – 2.5q a) Find the company's total, marginal and average revenues b) Find the price and quantity maximizing the total revenue by first expressing the revenue as a function of price rather than of quantity
B-club sells videocassette in two separable markets .the marginal cost of each cassette is $2. For the first market, demand is giv n by Q1=20-2.5p1 The demand equation for the second market is Q2=20-5p2 a)If the firm used third-degree price discrimination.what will be the profit maximizing price and?quantity in each market?how much economic profit maximizing will the firm earn? State different conditions required for price discrimination to occur effectively
Suppose a monopoly market has a demand function in whichquantity demanded depends not only on market price (P) butalso on the amount of advertising the firm does (A, measuredin dollars). The specific form of this function isQ =(20 - P2) (1 + 0.1A - 0.01A2).The monopolistic firm’s cost function is given byC = 10Q + 15 + A.a. Suppose there is no advertising (A = 0). What outputwill the profit-maximizing firm choose? What market price will this yield? What will be the monopoly’sprofits?b. Now let the firm also choose its optimal level of advertising expenditure. In this situation, what output levelwill be chosen? What price will this yield? What will thelevel of advertising be? What are the firm’s profits in thiscase? Hint: This can be worked out most easily by assuming the monopoly chooses the profit-maximizing pricerather than quantity.
9. A monopolist produces a good at a constant marginal cost of 4. Suppose the monopolist is able to practice first-degree price discrimination (FDPD). The (in- verse) market demand function for the good is given by P=10-bQ where P is price, Q is quantity and b> 0 is a constant. Let DL(Q) denote the deadweight loss at quantity Q, and let CS(Q) denote the consumer surplus at Q. (a) Under FDPD, the marginal revenue function of the monopolist is the same as the market demand function. Is this true or false? Explain carefully.
Bonus: A monopolist sells output at zero cost to two types of consumers, H and L, whoseinverse demand curves are given by Ph=45-5q and pl=30-5q. Derive and discuss the optimalsecond-degree price discriminating equilibrium. And calculate the consumer surplus for high demanded package only! Note that the monopolist cannot identify individual types, but he knows that there are two types exist.
Q3) How is peak-load pricing a form of price discrimination? Can it make consumers better off? Give anexample.