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MIDTERN 2 FALL09

# MIDTERN 2 FALL09 - Economics 100C Microeconomics C...

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Economics 100C: Microeconomics C Solutions to Midterm 2: Fall 2009 1. (20 pts) A monopolist sells a product in a market with exactly one consumer. That consumer’s inverse demand is given by P ( Q ) = 30 – Q . The monopolist’s long run cost function is C ( Q ) = F + 6 Q . (The monopolist has a cost of zero if it shuts down.) The monopolist uses a two-part tariff in this market. a. Find the efficient level of output. P ( Q ) = MC ( Q ) 30 – Q = 6 Q * = 24 b. Find the profit maximizing quantity, fixed fee and per-unit price. Q * = 24, P * = MC = 6, Fee = 0.5(24)(30 – 6) = 288 c. What are the values of consumer surplus, producer surplus and deadweight loss? CS = 0, PS = π = Fee + P * Q * – ( F + 6 Q *) = 288 – F , DWL = 0 d. For what values of F will the monopolist shutdown? Briefly explain. The monopolist will shut down if PS < 0. F > 288 Q P 24 MC P D ( q ) PS 30 6

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2. (20 pts) A monopolist sells a product in a market with exactly four consumers. Each consumer has the inverse demand given by P ( q ) = 30 – q . The monopolist’s long run cost function is C ( Q ) = Q 2 . (The marginal cost curve will be increasing.) This monopolist uses a two-part tariff in this market.
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MIDTERN 2 FALL09 - Economics 100C Microeconomics C...

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