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# Hw Set 3 - I NTERMEDIATE M ICROECONOMIC THEORY ECON301 Fall...

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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 profit-maximizing 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 profit-maximizing 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 short-run cost equation: C = Q 2 + 20. 1

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a. Draw a graph of the monopolist’s demand curve, short-run marginal cost curve and marginal revenue curve and determine the profit-maximizing price and quantity. b.
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Hw Set 3 - I NTERMEDIATE M ICROECONOMIC THEORY ECON301 Fall...

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