Question

3. Monopoly Consider a situation where a monopolist faces the following inverse market demand curve 132 - 2a p and the following cost function TС — 12g + 2q* a) Derive the marginal revenue and marginal cost functions b) What are the equilibrium price and quantity if this market behaved as if it were competitive? c) Calculate the Consumer Surplus, Producer Surplus and Welfare levels under perfect petition d) What are the equilibrium price and quantity when the monopolist produces perfectly com- as a monop- olist? e) Calculate the Consumer Surplus, Producer Surplus and Welfare levels under monopoly f) How much deadweight loss does the monopolist create? g) What could the government do to regulate the monopolist?

Answer 1

ANSUWER marginal cot fnctiong Maginal erenue a) dCTR) Marginal nevenue 2-2y ) (9) TR Ctotal nevenuej Prq 2 13a d13a- a9 da MR 13a-49 Marginal d CTC) de d 129 ta9 d/ Cose b) auili bium pTce and quantity- perfecty behaved ie if it were market as Compebibi ve, 1en Price P demand p 13a-29 Let in auantityia price change

132-2 49+19 20 2t 49c changed prl ce 12+ 4 Cao) 9a - surplus and welfave Cosume suplus Produee levels undes perfect competition - Ape Suaplu 2 Pe E Consumes 132-9a) (20-0) 400 produce surplus 92-12) Cao-o) &00 total oelfane la00 400 t 800 d) eilibrum mongples Vuantity hen e Price and Prad uces Cu monaploy undey MP and MRE 132- 49 l52-44 12t49

8Vm 15 132-am demand Cuave 132-2I5 Surpls and Pdlucer surplus and wefave UYP Consurmey tevels monopaly under Susplus (132-loa) Consumey 150) 15 produeer suples ram ta4m) 5- 10a -D 15 20 1a 15 +a 15 3 -6 30 900 total toelfare Qa5 +900