sol_even_10b

sol_even_10b - Chapter 10, Problem 8 8)

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8) Serena is a single-price, profit maximizing monopolist in the sale of  her own patented perfume whose demand and marginal cost curves  are as shown. Relative to the consumer surplus that would result at  the socially optimal quantity and price, how much consumer surplus  is lost from her selling at the monopolistic profit-maximizing quantity  and price? Chapter 10, Problem 8
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0 Ounces/day 24 $ per ounce 60 30 40 20 D MR MC 10 12 8
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0 Ounces/day 24 $ per ounce 60 30 40 20 D MR MC 10 12 8 Perfectly competitive output: P=MC Monopolistic output: P>MR=MC P Q Net Loss in consumer surplus Loss in producer surplus Transfer from CS to monopoly rent
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Perfectly competitive output: P=MR=MC 12 ounces, $30 each ounce Monopolistic output: P > MR=MC The firm still produce at MR=MC, but it charges a price higher  than MC 8 ounces, $40 each ounce Serena produces less than the perfectly competitive output Consumers loss due to the monopolistic price Loss in consumer surplus  = the area of the trapezoid between $30 and $40 = (8 +12) * ($40 - $30) *1/2 = $100
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However, part of loss in consumer surplus is actually transferred to  the monopoly rent That is the area of rectangle between $30 and $40 Transfer from consumer surplus to monopoly rent
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sol_even_10b - Chapter 10, Problem 8 8)

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