Question

Question 3 (10 points) Suppose a certain city has a monopol city has a monopoly cable-television company. This company has total costs TC (Hint: using calculus, this means sing calculus, this means MC = 50 since MC is the derivative of TC with respect to output.) The demand in the community is of the form Qo (alternatively, you can write the demand equation as Q. = 30 - 0.1P). • Graphically depict the demand curve as well as the marginal cost (MC) curve. • If the cable company is free to choose its own price P. and quantity Qm, graphically depict the monopoly equilibrium price and quantity. Add any other curve(s) to your diagram that may be required to obtain this outcome. Compute and state the exact monopolist equilibrium price P, and quantity Q that you depicted graphically.

Answer 1

Solution:

TIL Price,MC,MR IIIIIIIIIII TUTULUNUTUL ITUTULUI +2200 TITUTUL TUTULUI 2007 -180– 1.60 140 TUTULDU -1.00 UT TUT Quantity 130

In above graph, red line is marginal cost curve, blue line is demand curve. To get the equilibrium price and quantity, we have to draw marginal revenue curve which is twice steeper than demand curve. This line is shown by green line.

In monopoly, equilibrium condition is MR = MC that is where red and green lines intersect each other in above graph.

Equilibrium quantity is 12 and when this quantity line is extended upto demand curve we get equilibrium price. In this graph, equilibrium price is $180.

Here the monopolist earns supernormal profit.