Question

1. Welfare loss due to monopoly (Similar to Chapter 3 Question 10) Suppose that the demand for tickets to a game is given by P = 200-0.004A and the corresponding marginal revenue is MR 200-0.008A where A is the number of attendees. Assume that the constant marginal cost of fan attendance is 20 1. What will the price and attendance be with competition

Answer 1

P = 200 - 0.004 A MR = 200 - 0.008 A MC = 20 1. For the competition, the condition P = MR = MC implies P = MC implies 200 - 0.004 A = 20 implies A = 180/.004 = 1 A = 45000 therefore P = 20 consumer sulphur = Area of triangle ABC = 1/2 times AB times AC = 1/2 times 45000 times 180 = 4050000 (3) monopoly condition P greaterthan MR = MC therefore MR = MC implies 200 - 0.008 A = 20 implies A = 22.500 therefore P = 200 - 0.004 A implies P = 200 - 0.004 times 22500 implies P = 110 (4) profit = Total Revenue - Total constant pi = P times Q - 20Q pi = 110 times 22500 - 20 time 22500 pi = 2025000 consumer sulphur = Area of P_c EF = 1/2 times (200 - 110) times 22500 c middot S_1 = 1012500 (6) Dead weight loss = Area of triangle EGH =