Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and a horizontal intercept of (b,0). Denote the midpoint on the segment ab by the letter ‘m’ (i.e., am = bm) and let (Q*, P*) denote the coordinates at point ‘m’. A student in ECON 2010 once provided the following argument:
“A profit-maximizing monopolist who sells all units at a uniform price will never produce
more than Q* (or alternatively, will never charge a price below P*) since doing so will lower
total revenue, and by producing more, increase total cost. Even if the cost of production were
zero, the monopolist’s profits would fall if it produced more than Q*.”
Is the student’s argument correct? If so explain clearly why the student’s argument is correct. If not, explain why the student’s argument is wrong
I think the student's argument is not correct, in the sense that it is possible for the Marginal Profit to either go up or down depending on whether the Marginal Cost is lower than or higher than the Marginal Revenue, for an output more than Q. The argument this student makes is that even if the Marginal Cost for producing beyond this quantity Q is zero, profits will fall since Marginal Revenue for selling beyond this point is negative, which is not necessarily true, as the increase in quantity sold may more than offset the drop in price (between Q+x and Q).
Suppose that a monopolist faces a linear demand curve having a vertical intercept of (0,a) and...
1. a) The government is contemplating introducing one of two alternative taxes: a tax on commodity x (that would double the price of x, expressed in terms of the numeraire good, y) and a lump sum tax. Assume that the government knows the preferences (i.e., the indifference mapy of a representative taxpayer and his/her indifference curves have the usual convex shape. Suppose that government could predict how much tax revenue it could raise if it introduced the commodity tax. With...
Suppose a monopolist faces the following demand curve: P = 440 – 7Q. The long run marginal cost of production is constant and equal to $20, and there are no fixed costs. A) What is the monopolist’s profit maximizing level of output? B) What price will the profit maximizing monopolist produce? C) How much profit will the monopolist make if she maximizes her profit? D) What would be the value of consumer surplus if the market were perfectly competitive? E)...
Suppose a monopolist faces the constant price elasticity demand curve: p = Q? where ? < 0. The monopolist has a constant marginal cost of c. a. If ? < -1, can you determine what price and quantity will the monopolist set? Explain. b. If 0>?>-1, what is the price and quantity the monopolist will set?
Problem 1. (7 points) A monopolist faces the following average revenue (demand) curve: P = 300-0.3Q and the monopolist's cost function is given by C(Q) = 8000+0.3Q2 (a) Derive the monopolist's marginal revenue equation. (2 pts) (b) Derive the monopolist's marginal cost equation. (1 pt) (c) What level of output will the monopolist choose in order to maximize its profits? (2 pts) (d) What price will the monopolist receive at the profit-maximizing level of output? (1 pt) (e) Calculate the monopolist's profit when they produce at the profit-maximizing level....
1. (25 points) Suppose that a monopolist faces the inverse demand curve: P 100-Q and produces goods at a marginal cost of $5. Finally assume that the firm incurs no fixed costs A. Suppose the monopolist lowers the price from $90 to $89. Explain why the firm's marginal revenue is less than the price of the 11th unit sold, $89 (do not answer this question by providing a mathematical equation). B. At what price will the monopolist maximize its profit?...
3. Consider a uniform-price monopolist that faces demand curve P() 14 2Q and faces a total cost TC() 20 (a) Calculate the profit maximizing price and quantity erw erwyat er Patt Q= (b) Determine the consumer surplus, producer surplus, and deadweight loss erwyat erwy erwyatt CS = el DWL =
Exercise 7. A monopolist faces inverse demand p(y) and cost c(y) with c'> 0 and c" 2 0. Demonstrate that the monopolist sets the price where demand is elastic. (So much for the popular argument that a monopolist manipulates inelastic demand.)
Exercise 7. A monopolist faces inverse demand p(y) and cost c(y) with c'> 0 and c" 2 0. Demonstrate that the monopolist sets the price where demand is elastic. (So much for the popular argument that a monopolist manipulates...
Suppose a monopolist faces the following demand curve: P=250-Q Marginal cost of production is constant and equal to $10, there are no fixed costs What is the monopolist's profit-maximizing level of output?
Suppose that a monopolist faces the following costs and demand
for its product:
A. Complete the table above. (Draw the table on a piece of
paper, take a picture with your phone and then attach the image to
your answer here.)
B. Given that the monopolist wants to maximise profits, what
price will it charge, and how many units will it produce?
C. What would be the quantity of output that would maximise
total surplus?
D. Explain why this monopolist’s...
2) Suppose a monopolist faces the market demand curve: P 100 -2Qd. A) What is total revenue at a price of $60? What is total revenue at a price B) What is the marginal revenue of the 21st unit of output? Show the gain of S58? in revenue from the increase in output (the quantity effect) and show the loss in revenue (the price effect) from lowering the price on a graph. C) Why is marginal revenue less than price...