Question

4. Suppose that a monopoly faces inverse demand given by P = 12-Q and has marginal cost equal to $2. (a) (5 points) Determine the equilibrium price, denoted by P (b) (5 points) If the market was instead served by perfectly competitive firms, then what is the equilibrium price? Denote it by P. (e) (4 points) If the monopolist can charge an entry fee in addition to its price P, then what is the optimal entry fee in this case? (d) (4 points) What is monopoly profit based on your answers from (a) and (c)? () (4 points) Alternatively, suppose that the monopolist sets its price at p while using a two-part tariff. What is its entry fee in this case? (1) (4 points) Based on your answer to (b) and (e), what are the profits for the monopolist using a two part-tariff with price p? (B) (4 points) Comparing profits from (d) and (f), which two-part tariff strategy will the monopolist implement? 04 DILI or de

Answer 1

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