PS 6

# PS 6 - The Mexican plants has a marginal cost function...

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Quantitative Intermediate Microeconomics Problem Set #6 1) Suppose that Intel has a monopoly in the market for microprocessors in Brazil. During the year 2001, it faced the demand curve, Q=300-P Q . It had a total cost function, TC=1,200+0.5Q 2 and a corresponding marginal cost function MC=Q. a) Find the profit-maximizing output and price. How much profit did Intel make? Calculate producer surplus, consumer surplus, and the deadweight burden. b) What would have been the equilibrium price and quantity if the industry had been perfectly competitive? Calculate producer and consumer surplus. 2) Imagine that Gillette has a monopoly in the market for razor blades in Mexico. The market demand curve for blades in Mexico is P=968-20Q where P is the price of blades in cents and Q is the annual demand expressed in millions. Gillette has two plants in which it can produce razor blades for the Mexican market: one in Los Angeles, California and one in Mexico City. In its L.A. plant, Gillette can product any quantity of razors it wants at a marginal cost of 8 cents per blade.
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Unformatted text preview: The Mexican plants has a marginal cost function given by MC M (Q M ) =1 + 0.5Q M. a) Find Gillette’s profit-maximizing price and quantity of output for the Mexican market overall. How will Gillette allocate production between its Mexican plant and its U.S. plant? b) Suppose Gillette’s L.A. plant had a marginal cost of 10 cents rather than 8 cents per blade. How would your answer to part (a) change? 3) Bolivian National Airlines is the only airline to make trips from City A to City B. The demand by type K consumers is X K =32-1/2P K X. The demand for type R consumers is X R =42 – P R X . The marginal cost is \$4. a) What is the profit-maximizing price-quantity combination in each market if Bolivian Air is able to use price discrimination? b) How much profit can it make from price discrimination? c) How much output will it produce and what price will it charge if it cannot use price discrimination? d) How much profit can it earn without price discrimination?...
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