4) Suppose a monopolist controls the market for diamonds. The inverse demand for diamonds is given...
4) Suppose a monopolist controls the market for diamonds. The inverse demand for diamonds is given by p = 1800 – Q, where Q is millions of carats of diamonds per year and p is dollars per carat. Cost function of the firm is given by C = (1/2) Q2
(SHOW EVERY WORKS)
a) What price and quantity does the monopolist choose?
b) Suppose the government regulates the monopolist to price at $900 per carat. What is the equilibrium quantity?
c) What is consumer surplus and producer surplus without regulation?
d) What is the deadweight loss from monopoly (without regulation)?
Homework Answers
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4) Suppose a monopolist controls the market for diamonds. The
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Calculate consumer surplus (CS), producer surplus (PS), and the
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PM that a monopolist will choose in this market.
Calculate consumer surplus (CS), producer surplus (PS), and the
deadweight loss (DWL) resulting from the monopoly. Graphical
Solution would suffice!
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How do I solve this problem?
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