Exam Guide Econs

. Assume a monopolist faces a commercialise motive rationalise P = coulomb 2Q, and has the short-run fare follow function C = 640 + 20Q. What is the profit-maximizing take aim of output? What are dinero? graph the fringy revenue, fringy damage, and necessity curves, and understand the area that represents deadweight passing play on the graph. 3. In question 2, what would footing and output be if the faithful termsd at neighborlyly greet-efficient (competitive) levels? What is the order of magnitude of the deadweight loss caused by monopoly destine? 4. Show that if a incorruptible is a lifelike monopoly, a government form _or_ system of government that forces peripheral cost pricing depart result in losings for the upstanding. . animadvert a wobble in technology available to fringe firms annexs their elasticity of supply, fix the total fringe supply curve from p = 5 + Q, to p = 5 + 2Q. If market learn is Q = 20 p, salute the potpourri in the re sidual demand curve using a graph. Is the prevailing firm better off or worse off after the change? 6. If a monopolist has constant fringy cost MC = 20, and faces demand p = 80 Q, what is the effect on consumer plain of a $5 per unit task on sellers? Is the levy revenue calm little than, disturb to, or greater than the consumer surplus loss plus the diminution in profits? 7. envisage a legislator introduced a bill that would decrease overt living for new drugs from 17 classs to 10 years, based on the line of products that it would contract deadweight loss through lower prices. What argument could you make against such a change? 8. Suppose a monopoly is for sale. What specifically must be bribed by the buyer in order to retain its market locate? How much would it be worth? 9. Suppose a monopolist faces a market demand curve Q = 50 p. If marginal cost is constant and equal to zero, what is the magnitude of the public assistance loss? If marginal cost profits to M C = 10, does welfare loss increase or decrease?Use a graph to explain your answer. 10. The chapter notes that one doable alternative to regulation is for the government to hike competition. Would this be an efficient mechanism to increase competency in an industry where the officer firm is a natural monopoly? 11. If a monopoly firm sells a product with price $ degree centigrade, whose marginal cost is $30. What is the price/ marginal cost ratio? What is the Lerner Index? And what is the demand elasticity the firm believes it faces? 12. Suppose a monopoly firm with a constant marginal cost 10 faces an inverse elongated demand function p = 50 Q.What would be the profit-maximizing price and beat if its marginal cost doubles? How does it equalize to the outcome with original cost? Answers 2. First, come up the MR and MC functions then set MC = MR and solve. image Figure 11. 1. Deadweight loss is equal to area abc. P = 100 ? 2Q R = 100Q ? 2Q 2 MR = dR/dQ = 100 ? 4Q MC = 20 100 ? 4Q = 20 Q* = 20 p* = 60 ? = 1200 ? 1040 = 160 Figure 11. 1 3. To solve for the competitive price and output, set MC = p. 20 = 100 ? 2Q * QC = 40 * pC = 20 The magnitude of the deadweight loss is $400, which is the area of trilateral abc in Figure 11. 1. 4. design Figure 11. 2.If the firm is a natural monopoly, AC move throughout the range of demand. When AC is falling, MC is below AC. By forcing the firm to price at marginal cost, revenue would be less than cost, and the firm would incur losses equal to area abcd. Figure 11. 2 5. See Figure 11. 3. The change in technology reduces the slope of the fringe firm supply curve, allowing them to supply to a greater extent of the total demand at all prices in a higher place $5, making the dominant firm worse off. Figure 11. 3 6. The $5 tax increases MC to $25. Quantity go from 30 to 27. 5, and price increases from $50 to $52. 50. Consumer surplus falls by $71. 875 (from $450 to $378. 25). Profits fall by $143. 75 (from $900 to $756. 25). Tax revenue imperturbable is $137. 50 ($5 ? 27. 5 = $137. 50). See Figure 11. 4. Figure 11. 4 7. In order for the legislation to bedevil a net positive effect, both brotherly cost must be more than offset by the lower prices when the patent expires. Firms would engage in less query and development. If a firm believed that a realize could only become profitable in the 11th through 17th year of the patent, it would not be funded, or may be funded at a less than efficient level. The reduction in wellness that occurs as a result represents the social cost of the policy. . The buyer would own to purchase whatever the source is of the monopolists barrier to entry, for example, a patent, or the meet of a resource needed for production. The tax of a barrier to entry is the discounted flow of profits that a monopolist could stomach to earn from that monopoly. In the case of a patent it would be the discounted stream of profits that could be earned in the remain years before the patent expires. 9. See Figure 11. 5. When marginal cost is zero, the firm sells 25 units of output for $25 per unit. The welfare loss is equal to the area of triangle abc, or $312. 50.When marginal cost increases to $10, the firm reduces output to 20, and the new welfare loss is def, or $250. 00. Figure 11. 5 10. zero(prenominal) If the incumbent firm is a natural monopoly, to encourage entry through any form of assistance or allowance will reduce overall efficiency and lead to increased prices, because cost increases as per-firm output decreases. 11. The price/marginal cost ratio will be 100/30 = 3. 33. Its Lerner Index is 70/100 = 0. 7 and the firm believes it faces a demand elasticity of 1. 43. 12. Under MC = 10, we have 10 = 50 2Q, hence Q = 20 and p = 30. With the new marginal cost, we have 20 = 50 2Q. Hence Q = 15 and p = 35.