Question

4) Suppose Microsoft computers has a cost curve equal to C = a demand curve equal to p = 550 – 2Q. The Bay Area regulators have hired you as a consultant to help them out! i) Draw the firms MR and MC curves, and find its optimal output qm. What would be the firm's profit? ii) If regulators set the price equal to the marginal cost, what would be new price? Draw the firm's new MR and MC curves, and find its new optimal output Im. What would be the firm's new profit? iii) If the regulators instead imposed a $10/unit tax on the firm's output, how would it change the firm's output and price? (Hint: How would this change the firm's marginal cost?) Do you think this would increase welfare compared to part (i)? iv) Which of the two interventions do you think is better, and why? 150Q and faces

Answer 1

b) P- 550 - 2-Q - TC - 150 & MC = 150 TR = P & -1550-20) -550Q - 2Q ² MR - 550-40 TQ10 100 Equilibriuno Condition : MR7550 so MR = Mc 557 - 4Q - 150 4 Q = 530-150 4 = 400 - 100 - 550-2 X 100 - 350 Pmc, mR 530 AMR 100 137.50 om = TR-TC = P,Q - 150Q = Q(p-150) - 100 (350-150 - 100 x 200 = $20,000 (ü) Equilibrium : - 5500 P=MC 550-29 - 150 20 = 400 Q = 200) PMC 150 L ontand 200 275 Q P- 530-2x200 0=150 Profit - TR – TC = P, Q - 150 Q (P-150) -Scarred with CamScanser 200 0 0 --

* UIMUI TC = 150Q me = 150 er tax = to 150t 160 PMC, MR Decrease is welfare 160 UHR -Me -mc, 91.5 137.5 New 550 - 2X 97,5 equim mR=mc' 530 - 4Q - 160 4Q=390 Q - 97.5 - 550 - 195 = 355 ) in I No, imposition of tax would not increase I welfare. Intervention of setting price equal to marginal cost a better because it will not decrease ле і але, а осопоту . а туш , CamScanner