A single price monopolist is selling purple lemons. Demand for the lemons is P = 4...
A single price monopolist is selling purple lemons.
Demand for the lemons is P = 4 - 0.002Q. The marginal cost of production for the firm is MC = 0.4 + 0.001Q.
Calculate the deadweight loss if this firm chooses their optimal quantity.
Homework Answers
Deadweight loss = 0.5 x (Qc - Qm) x (P - MC)
Qm is calculated using the relation: MR = MC
MR = d(PQ)/dQ = 4 - 0.004Q = 0.4 + 0.001Q
Qm = 720
P = 4 - 0.002 x 720 = 2.56
MC = 0.4 + 0.001 x 720 = 1.12
Qc is calculated using the relation : P = MC
4 - 0.002Q = 0.4 + 0.001Q
Qc = 1200
Deadweight loss = 0.5 x (1200 - 720) x (2.56 - 1.12) = 345.6
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A single price monopolist is selling purple
lemons.
Demand for the lemons is P = 4...
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