Q1. A monopolist will not produce at all if the intersection of marginal revenue and marginal cost accurs at a quantity at which average cost lies above the demand curve. a) True b) False a) a b) b Q2. First-degree price discrimination is efficient and therefore preferred by everyone to no price discrimination on the part of a monopolist. a) True b) False a) a b) b

Q1. A monopolist will not produce at all if the intersection of marginal revenue and marginal cost accurs at a quantity at which average cost lies above the demand curve. a) True b) False a) a b) b Q2. First-degree price discrimination is efficient and therefore preferred by everyone to no price discrimination on the part of a monopolist. a) True b) False a) a b) b

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.9P

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2. Consider a monopolist who has a cost function of c(Q) = 5Q. This monopolist faces two consumers, the first having demand q₁(P₁) = 80 - 2P₁ and the second having demand q₂ (P₂) = 50 - P₂. a) Calculate the profit-maximizing price and then the optimal quantity sold to each consumer under uniform pricing, i.e. the monopolist charges the same price for both consumers. What are the monopolist's profits? b) Suppose now that the monopolist can engage in third degree price discrimination. Find the monopolists profit maximizing prices for consumers 1 and 2 (they should be different), and calculate the monopolist's profits. How do they compare to the profits in part (a)?
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.
4) A monopolist is operating in two separate markets. The inverse demand functions for the two markets are P1 = 52 – 2Q1 and P2 = 64 – 1.5Q2. The monopolist’s total cost function is TC(Q) = 20 + 4(Qı + Q2). The monopolist can price discriminate. What kind of price discrimination is relevant here? What is the profit-maximizing price in each market? What is the monopolist's profit?
Q1) Suppose that the inverse demand for a product is represented by the equation P = 50 – Q, where P is the price in Euros and Q is the annual output. Suppose that only one firm produces this product and that the marginal and average cost is €10. Calculate the profit-maximising price for this monopolist. Q2) In autumn, Erling Kagge, who lives alone on an island near the North Pole, puts 50 bags of root vegetables from his harvest into a cave just before a family of polar bears goes in to hibernate. The polar bears do not eat vegetables but would attack Kagge if he approached them. As a result, he is unable to get the vegetables out before the polar bears emerge the following spring. The vegetables spoil at the same rate no matter where he stores them. Which of the following statements best describes this behaviour? A. Kagge’s behaviour is an example of the anchoring effect in action B. Kagge’s behaviour is an example of the framing effect in action C. Kagge’s…
A monopolist faces a market demand curve given by Q(p) = 70 – p. Its total costs are described by TC(Q) = 3ố0 Q³ – 5Q + 250. 1 a) Derive the monopoly price, quantity, and profits. b) Calculate Lerner Index under the monopoly equilibrium. c) Now suppose the government sets the maximum price at $40. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss? d) Suppose the government sets the maximum price at $30. What output level and price level will the monopolist choose to maximize profits? What is the deadweight loss?
With regard to market structure, answer the following: (a) A monopolist never produces in the inelastic portion of its demand curve. True or false? Why? (b) Draw a figure showing a monopolist producing at the lowest point on its long-run average cost curve. (c) What is third degree price discrimination? Why does a monopolist practice it? What are the conditions are necessary for the monopolist to be able to practice it? Give a real-world example of third degree price discrimination? (c) If the price elasticity of demand is -3 in market 1 and -2 in market 2 and the price in market 1 is $12, what price should a monopolist practicing third degree price discrimination set in market 2?
2. A monopolist faces a representative consumer who acts as a price taker and has the demand function as Q(Q) = 200 – 2P. Suppose the monopolist bears the total cost C(Q) = 100 + 20Q + when producing Q units. a. Find the producer surplus of the monopoly if it exercises perfectly price discrimination. b. Find the producer surplus of the monopoly under the optimal two-block pricing. c. If the monopoly sells with two-part tariff T = A + pQ to the consumer, find its optimal A and p.
Assume a single-price monopolist has an inverse market demand curve given by P(Q)=300-0.5Q, and has a cost curve: C(Q)=125+20Q+0.5Q2. Q1: How many units will the monopolist provide in the market equilibrium? Q2: What is the economic profits of this monopolist? Q3: What is the economic rents of this monopolist?
A monopolist faces a demand of D(P) = 400−(1/5)P and constant marginal costs: TC(Q) = 1,000Q. 1. Calculate the optimal price, quantity and total profit of the monopolist. 2. Derive the dead weight loss created by the monopolist and illustrate graphically. 3. Repeat questions 1) and 2) but now assume that the market is perfectly competitive (marginal cost pricing) 4. Take the monopoly case (as in 1) and 2). Now the government imposes a maximum price of $1250. Discuss the (welfare) effects of this measure. 5. Still in the monopoly case, assume that, instead of the maximum price, the government gives producers a per unit subsidy of $1,000. Discuss the welfare effects of this measure. 6. Suppose the market is perfectly competitive—as in 3)— and the government gives producers a per unit subsidy of $1,000. What is the welfare effect of this subsidy? Compare your answer with 5).
Question 4. Consider a monopolist facing a demand curve of the form D(p) = 100 – 2p where p is the - unit price. Suppose the monopolist has a constant marginal cost of production of $2 a unit. Bunter was asked to determine the price which would maximize consumer surplus. Here is his solution: Total surplus as a function of price is 50(100 – 2x)dx. The derivative of this with respect to p is -(100-2p). This is maximized by making p as large as possible, i.e., p = 50. Is Bunter correct? If not, what is the error that Bunter has made?