INTERMEDIATE MICROECONOMIC THEORY
ECON301
Fall 2010
Third Problem Set (Due on December 2
nd
)
1.
Suppose a monopolist produces its output subject to the following total cost
equation:
C = 100 + 10Q + 2Q
2
, and the demand curve it faces is p = 90  2Q.
Determine the
price, quantity, and profit for this firm.
2.
Assume that the inverse demand equation a monopoly faces is P = 40  Q, and
marginal cost is constant at $5 per unit.
a.
Draw a graph showing the demand curve, marginal revenue curve and
marginal cost curve.
b.
What are the monopolist’s profitmaximizing output and price?
c.
Calculate the consumer surplus, producer surplus and social welfare at the
monopoly output and price.
d.
What is the value of Lerner’s index at the profitmaximizing price and
quantity?
Show your work.
3.
Assume that a firm has a monopoly.
Its demand curve is given by the
equation
P = 60 – Q.
It produces its output subject to the following shortrun cost equation: C
= Q
2
+ 20.
1
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Draw a graph of the monopolist’s demand curve, shortrun marginal cost
curve and marginal revenue curve and determine the profitmaximizing price
and quantity.
b.
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 Fall '08
 Arnold
 Microeconomics, Supply And Demand, fi rm, marginal revenue curve

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