# PS_CH11 - ECON2296- 1 A monopoly faces market demand of Q =...

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ECON 2296  -  Practice Questions Chapter 11 1. A monopoly faces market demand of Q = 450 - 4P and has total costs of TC = Q 2 + 500. a) Calculate the monopoly’s output, price and profits. b) Suppose the monopoly used first-degree price discrimination. Calculate the monopoly's marginal revenue, output and profit. 2. A monopoly serves two markets: residential and commercial. The demand of residential consumers is Q R = 125 - 5P R and the demand of commercial consumers is Q C = 400 - 20P C . The firm's total cost is TC = 3Q 2 /50 where Q = Q R + Q C . a) What is the total market demand for the monopoly's product? b) If the monopoly charged a single price what price would maximize profit? Hint: find marginal revenue. What would the monopoly's profit be? c) Which individual market segment is willing to pay higher prices? Would it be more profitable for the firm to sell only to this segment of the market? 3. Suppose the firm in Question 2 separated the two markets and used third-degree price discrimination. a) What is the marginal revenue of the residential market? b) What is the marginal revenue of the commercial market? c) What price would the firm charge each market under price discrimination? d) Calculate the monopoly's profit. Is profit higher than selling at a single price? e) What is the price elasticity of demand in the residential market? In the commercial market? In which market is demand less elastic? In which market is the price higher? 4. A monopoly's sells its product to consumers with identical individual demands: Q = 100 - P. The firm's total cost is C = 10Q. a) If the monopoly charged the same price on each unit, what price would maximize profit? b) What would the monopoly's profit be from each consumer? c) Suppose the monopoly used second-degree price discrimination by charging \$80 per unit for the first 20 units (ie an initial block of 20 units) and \$40 per unit for any units above 20 units. Calculate the monopoly's profit from each consumer? d) Suppose instead that the monopoly charged \$100 per unit for the initial block of 5 units and \$10 per unit for the units above 5 units. Would the monopoly's customers buy any of the product? Explain. If the monopoly set a larger initial block at \$100 per unit, would its customers still buy the product? Explain. e) What is the largest initial block that the monopoly could set and its customers would still buy the product (at a price of \$100 per unit for the initial block and \$10 per unit for units above the initial block). f) What would the monopoly's profits be in e)? 5. A monopoly uses two-part tariffs to sell its product to consumers with identical individual demands: Q = 50 - 5P. The firm's total cost is C = 2Q.

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a) What price would the monopolist charge to maximize profit? What membership fee would the monopolist charge to maximize profit?.
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PS_CH11 - ECON2296- 1 A monopoly faces market demand of Q =...

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