HW1doc - EEP101/ECON125 Spring 99 Prof D. Zilberman TAs:...

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EEP101/ECON125 Spring 99 Prof D. Zilberman TAs: Malick/Marceau Due Thursday, February 18, 1999, in class (Late assignments will not be graded.) Part A: Numerical Problems 1. Assume we have a monopoly. The market demand function is given by p = 200 - 2q, where p is the price in dollars and q is the quantity demanded. The marginal cost of production (mc) is given by mc = 20 + 2q and the marginal external cost (mec) is given by mec = 10 + 0.25 q. a) Determine the socially optimal level of output (q* s ) and the total external cost (TEC) at this level of output. b) Determine the equilibrium output of the monopolist (q m ) and the equilibrium price (p m ). What is the deadweight loss (DWL) in this case? What is the total external cost (TEC) in this case? c) Determine the consumer surplus (CS) and the producer surplus (PS) under monopoly. d) The government wants to fix the externality problem using a price mechanism. Should the government tax or subsidize the monopolist? Explain. e) What is the optimal level of this tax/subsidy? Explain. f)
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HW1doc - EEP101/ECON125 Spring 99 Prof D. Zilberman TAs:...

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