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monopoly ex

monopoly ex - COMM/FRE 295 Monopoly/Price discrimination...

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1 COMM/FRE 295 Monopoly/Price discrimination Practice Questions Question #1 ACME Widgets is a monopoly producer of widgets in the world. ACME faces 100 consumers, each with a demand curve of Q = 0.7- 0.02P and C(Q)=10+5Q. (a) Find the optimal P and Q for ACME when it cannot price discriminate. Also find monopolist’s profits. (b) Find DWL (social cost). Please use a diagram in your answer. (c) If ACME could perfectly price discriminate, what would be ACME’s Q? (d) Based only on the cost structure of ACME, is it conceivable that ACME is a natural monopoly? (e) What are two-part tariff P and Q? (f) Is the two-part tariff equilibrium of part D more or less efficient than the perfect price discrimination equilibrium of part C? Please explain briefly. Question #2 (a) Explain why a monopolist, if it chooses to sell a positive quantity, always sets a price in the elastic portion of its demand curve. (b) What are some of the practical challenges to be a successful 3 rd degree price discriminator? Question #3 DGI is a highly profitable monopolist that sells satellite photos to farmers. The cost of launching the satellite was substantial, and the majority of the launch costs are fully sunk. DGI’s MC of supplying each photo = \$5. Its annual non-sunk fixed cost is F. The farmers’ annual demand for photos is given by Q d = 100,000 – 5000P. a) Is DGI a natural monopolist? Use the information provided in the previous paragraph to briefly explain why DGI is or is not a natural monopolist (a graph may be used to support your argument, but it is not necessary).

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