h10 - The Colorado College Department of Economics and...

1
The Colorado College
Department of Economics and Business
Block 7
Econ 207
HW 10.
1. A monopolist can produce at constant marginal and average costs of AC=MC=5. The
firm has a market demand curve given by Q = 53 – P.
(a) Derive the monopolist’s marginal revenue curve. Next calculate the profit maximizing
price-quantity combination for the monopolist. Also calculate the monopolist’s profits
and consumer surplus. (5 points)
(b) What output level would be produced if the monopolist was forced to charge a
perfectly competitive price? (2 points)
(c) Graph the situation and show the area of the deadweight loss. What is the value of the
“deadweight loss” from monopolization? (3 points)
2. (a) Suppose a monopolist has a monopoly on a game called monopoly and faces a
demand curve given by:
Q
T
= 100 – P and a marginal revenue function given by
MR = 100 -2Q
T
where Q
T
equals the combined total number of games produced per hour
of the company’s two factories (Q
T
= q
1
+q
2
). If factory 1 has a marginal cost function