ptsq4-monopoly

# ptsq4-monopoly - Price Theory Study Questions set#4...

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Price Theory Study Questions set#4 MONOPOLY AND RELATED DISCUSSIONS 1. Consider the following inverse demand curve faced by a monopolist: P= 100 -Q. a. Find the marginal revenue curve for the monopolist. b. At what quantity is total revenue maximized? c. If MC and AC are constant at \$20, then what is the profit-maximizing output for a monopoly? What is the monopoly price?…monopoly profit? d. How would your answer to part (c) change if a \$10 per unit tax was imposed on the monopolist? Is the monopolist able to pass on all of the tax to consumers? Explain. e. What would be the P and Q in a competitive industry? f. Find consumer and producer surplus for a competitive industry and a monopoly. How do they compare? 2. True or false, explain. a. A monopolist can sell all that it wants at whatever price it wants. b. A monopolist necessarily makes a positive economic profit. c. The quantity at which TR is maximized is greater than the quantity at which total profit is maximized. d. a change in fixed costs does not change the quantity at which monopoly profit is maximized in the short run. e. A operates on the inelastic segment of its demand curve. (Use graph to explain.) 3. A movie studio pays its star actors 10% of total revenue. Who has the incentive to charge the highest price for a movie ticket---the studio or the stars? Explain. 4. A price-discriminating monopolist faces the following inverse demand functions: In Market One it is P 1 = 20-Q 1 where P 1 is the price charged in Market 1 and Q 1 is the quantity demanded in Market one. In Market Two it is P 2 = 15-1.5Q 2 where P 2 is the price charged in Market 2 and Q 2 is the quantity demanded in Market Two. Marginal cost is constant at \$5. Find the profit-maximizing quantity and price charged in each market. Calculate profit in each market and joint profit. What would this firm’s price, quantity and profit be if it were constrained to charge the same price to all consumers? Show this outcome on a graph. 5. A price-discriminating monopolist faces the following inverse demand functions: In Market One it is P 1 = 80-Q 1 and in Market Two it is P 2 = 60-Q 2 . Marginal cost is constant at \$10. Consumers in market two can resell the good to consumers in market one at a cost of \$4 per unit. Find the profit-maximizing quantity and price charged in each market subject to the resale constraint. 6. Consider the following inverse demand function: P = 10 – Q. Marginal cost is constant at \$2. a. Find the TR and MR functions under perfect-price discrimination. What is profit-maximizing quantity? What is profit?

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## This note was uploaded on 10/12/2008 for the course ECON 303 taught by Professor Cheng during the Spring '07 term at USC.

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ptsq4-monopoly - Price Theory Study Questions set#4...

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