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nm - 1 Problem set 1 A monopolist has the following total...

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1 Problem set 1. A monopolist has the following total cost curve: TC ( Q ) = aQ + bQ 2 ; a; b > 0 where Q is the output produced. The demand curve for output is P ( Q ) = d ° eQ; d; e > 0 where P ( Q ) is the price that consumers are willing to pay for Q units of output. a. Find the pro°t maximizing level of output for the monopolist and the pro°t maximizing price. b. Find the welfare loss due to monopoly. Assume that a competitive °rm will equate marginal cost to price. 2. Competitive equilibrium with declining cost industry? ± Let there be n °rms. Each °rm±s °xed cost is F . After paying F , the °rm±s variable cost for producing q units is cq . So total cost for producing q is: TC ( q ) = F + cq Average cost is TC ( q ) q = F q + c Which is declining in q . ± Note that marginal cost is @TC ( q ) @q = c a, If the price of output is p > c , how much should a typical °rm produce? Can there be a competitive equilibrium in this case? b. If the price of output is p < c , how much should a typical °rm produce?

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nm - 1 Problem set 1 A monopolist has the following total...

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