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Unformatted text preview: Econ 6202, Fall 2009 Dmitry Shapiro Problem Set 10 Optional 1. A monopolist faces a market demand curve given by q ( p ) = 70- p. (a) If the monopolist can produce at constant average and marginal costs of AC = MC = 6, what output level will the monopolist choose to maximize profits? What is the price at this output level? What are the monopolists profits? (b) Assume instead that the monopolist has a cost structure where the total costs are described by TC ( q ) = 1 4 q 2- 5 q + 300 . Find the price-quantity combination that maximize the monopolists profit. What will profits be? 2. First-degree price discrimination Consider the following economy. There are two consumers, 1 and 2, who derive utility from a certain good ( x ) and from money ( m ). The consumers utility functions are u 1 ( x,m ) = 40 x + m, u 2 ( x,m ) = 60 x + m. A monopolist produces the good at constant average and marginal costs c = 5. Suppose that the monopolist observes the consumers utility and makes take-it-or-leave-it offers (...
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This note was uploaded on 10/20/2010 for the course ECON 6202 taught by Professor Shapiro during the Fall '09 term at UNC Charlotte.
- Fall '09