Unformatted text preview: YORK UNIVERSITY — AS/ECON2350 — V. BARDIS
PRAQTIQE SET 3 1. Suppose market demand for a product is Q = 100 — 2p where Q denotes quantity demand at price
p. A producer can provide Q units of the good at cost C(Q) = 10Q.
(a) Find the equilibrium price and quantity if the market is a monopoly.
(b) Discuss the the eﬁiciency and distribution consequences of monopoly by comparing the monopoly
allocation to the perfectly competitive outcome.
(c) Suppose the price of one of the inputs used to produce this good rises. Will the change in the price
paid by consumers be greater under monopoly or perfect competition? Use a well-deﬁned diagram to justify your answer. 2. Consider a perfectly competitive industry that consists of 71 identical ﬁrms7 each ﬁrm’s costs given
by C(q) = q2 + 1 if it produces q units. Aggregate demand in the market is Q = 1000 — 10p. (a) Find the long-run equilibrium in the market.
(b) Find the value of total surplus under perfect competition. (c) Suppose next that a single ﬁrm produces the good. The monopolist can employ any number of
production plants. Each plant’s cost is given by the above cost function, i.e., C (q) = (12 + 1.
Find the equilibrium price7 quantity and number of plants under a single—price monopoly. (d) What is the value of the dead-weight loss under monopoly? 3. TRUE OR FALSE: A monopolist will never operate on the inelastic part of the demand curve. 4. TRUE OR FALSE: A per-unit tax is preferable to a sales tax in the case of monopoly. 5. Suppose a monopolist sells a good to two geographically separated markets. Demand in market one
is given by Q1 2 15 — p and demand in market two is Q2 2 20 — p. Firm costs are characterized by Mﬂleﬂlzl.
(a Suppose transportation COStS are very lar e. Find the price the ﬁrm W111 char e in each market.
g g b HOW do you account for the difference between the tWO rices. p (c) How will these prices change if the transportation costs become zero.
(d) Compare total welfare in case (a) with that in case (c). What is the efﬁciency loss? 6. A monopolist knows that its customers consist of two types based on their ‘willingness to pay’7 but
cannot identify the type of the individual customer. Each type’s willingness to pay for the 1—unit
and 2-unit bundle of the ﬁrm’s product are given below. Maximum Willingness to Pay Type A Type B
1-unit 6 5 hinit 10 6 Assuming production costs are zero, what is the pricing scheme that would enable the ﬁrm to dis-
criminate between consumer types? If there is an equal number of consumers per type, is this price
discrimination scheme proﬁt maximizing? Is it efﬁcient? 7. TRUE OR FALSE: If a labor market is dominated by a monopsonist it is possible that the imposition
of a minimum wage could increase the amount of employment in that market. ...
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- Summer '08