Problem Set 09-10 (ECO100) - Prof. Gustavo Indart...

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Department of Economics University of Toronto ECO 100Y INTRODUCTION TO ECONOMICS Problem Sets 9-10 1. The diagram below shows the unit cost situation for a monopolist. a) The demand curve for this commodity is P = 16 - Q/10. Plot this demand curve and the marginal revenue curve for the monopolist in the diagram. b) i) What output maximizes monopoly profits? ii) What is the price at this output? iii) What is the total revenue at this output? iv) What are total costs at this output? v) What are economic profits at this output c) Ignoring profit, which output: i) maximizes total revenue? ii) is the largest possible without suffering economic losses? d) Assume now that the industry is competitive and that the marginal cost curve represents the industry's short-run supply curve. i) What is price and output at short-run equilibrium? ii) What is the industry's profit or loss at this equilibrium? iii) What is the difference in total surplus between this competitive equilibrium and monopolistic equilibrium? e) Return now to the monopoly situation (ignore part d). Suppose the government imposes a sales tax of $1.00 on each unit the monopolist sells. Show the effects of this tax on the monopolist and equilibrium using Diagram 1. 0 10
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This note was uploaded on 08/10/2010 for the course ECONOMICS ECO100Y taught by Professor Furlong during the Summer '09 term at University of Toronto- Toronto.

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Problem Set 09-10 (ECO100) - Prof. Gustavo Indart...

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