ECON 404 A: Industrial Organization & Price Analysis
Homework Assignment 1
Yuya Takahashi
4
=
15
=
2019
Solve the following three big questions. The full score is 100. Question 4 is optional, but if you solve it
correctly, you will earn extra points. Students are encouraged to work as a group, but each student should
write her/his own answer, including the STATA part. The due is 4/23/2019 in class.
1. (66 points in total)
Answer the following questions.
(a) (6 points) Suppose the cost function is given by
TC
(
q
) =
F
+
cq
where
F; c >
0
:
At what output
level is the average cost minimized?
(b) (6 points) Consider a monopoly market. Demand is given by
Q
(
p
) = 100
°
p
and the total cost
function of the monopolist is
TC
(
q
) = 10
q:
Find the pro°t maximizing quantity and price. Calculate
the consumer surplus and the dead-weight loss due to monopoly (the di/erence in total surplus
between the case of perfect competition and monopoly).
(c) (6 points) Consider a monopoly market. Demand is given by
Q
(
p
) = 100
°
p
and the total cost
function of the monopolist is
TC
(
q
) = 10
q
+800
:
If the government imposes the average cost pricing
restriction, how much would the price and dead-weight loss be?
(d) (6 points) Consider a monopolist producing a product and selling the product in two di/erent
markets. Assume that the monopolist can charge two di/erent prices in these two markets. Demand
in these markets are given by
Q
1
(
p
) = 100
°
2
p
and
Q
2
(
p
) = 50
°
1
2
p;
respectively.
The cost
function of this monopolist is
TC
(
q
1
+
q
2
) =
1
2
(
q
1
+
q
2
)
2
:

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