ps6x313_f05 - Why or why not e Identify the area...

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1. The DeBeers corporation currently owns 20 active diamond mines. Each mine is identical and has the following long-run and short-run total cost function: lrtc = srtc = 10q i where q i is mine i's output level. The market demand function in DeBeers’s market is given by: Q D = 51 - (1/10)P. a. If we assume that this market has a simple monopoly structure, what is the equilibrium simple monopoly solution? That is, determine P SM , Q SM , and π SM and determine the number of diamonds, q i , produced in each mine. b. Graphically depict your answers in a monopoly market diagram. c. Based on your graph, do we have productive efficiency at this monopoly market equilibrium? Why or why not? d. Based on your graph, do we have allocative efficiency in this monopoly market equilibrium?
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Unformatted text preview: Why or why not? e. Identify the area representing dead-weight-loss (if any) in your diagram in part (b) and determine its numerical value f. What type of barriers to entry story would be a plausible/reasonable explanation for the DeBeers monopoly? 2. Assuming simple monopoly, show that marginal revenue and own-price elasticity can be related in the following way described below. That is, show how you go from the expression for marginal revenue which is mr(x) = P(x)*1+x*( d P(x)/ d x) to the expression below: mr(x) = P(x)[1 + (1/own-price-elasticity-of-demand)]. Econ 313 - Wissink - Fall 2005 PS#6 – XtraQ (NOTE WE ARE JUMPING BACK TO TO PS#6) DUE: In class on Monday Nov 28 (only the XtraQ will be due at that time)...
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