Question

Consider the following information for the production of coffee cups: QP = 50 – 5P MC = $2 2 MR = 10 – 50° (a) [5 marks] If Coffee cups are produced in a perfectly competitive industry, how many cups are produced and at what price are they sold at? Explain. (b) [10 marks] What is the producer, consumer and total surplus' in this case? Calculate, graph and explain. (c) [5 marks] If instead coffee cups are produced in a monopoly market structure, how many cups are produced and at what price are they sold? Explain (d) [10 marks] What is the producer, consumer and total surplus' in this case? Calculate, graph and explain. (e) [5 marks] Would you advocate for the monopoly to be able to use first degree price discrimination? Why/why not?

Answer 1

qo= 50-5P P 10- ŚQP MC $2 MR = 10- a) A perfectly competitive froom will produce at the output level where D- M C (in orda to max. profit) 10- $ 2:2 (10-2)+5 40 .. 10- (₂x60) = $2 b) Price (!) 10 Demand me OS Quantity 40 CS I (10-2) +20 $ 160 Pos : $0 - T. Sa C.stp.s 16oto - 160

c) А where monopoly will produce at the output level (in order to max. profit) MC = MR 22 Qin 6 (10-2) x 5 을 20 10-4420) 10 lo 2.C.52 k (10-6)= 20 $40 MR Demand .MC 2 Pisz to (6-2)*20.2$ 80 25 SS 15 20 ce T.SE c.stp.s 40+ so $120 ist degree P.D 20 this the consumer's willingness aikia Perfect Price discrimination producer knows each to their willingness (10-2) = 40 pay of this will charge consumers nean P=MC payt produce at P.S. 21 $ 160 Cosa o & Down to JVT IS CSAP-$ 2 0+ 160 = $ 160 Is the best situation the entire surplus is extracted thus this ad wa monopoly by prodice 30