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Problem 1.
The demand curve for the product of a monopoly is
P
= 53 –
Q
. Marginal cost of production is $5
per unit.
Find:
a)
Optimal output, price and profit of the firm.
b)
Price and equilibrium quantity in the case of perfect competition.
c)
CS in both cases.
Solutions:
a.
P
= 53 
Q
PQ
= 53
Q

Q
2
MR = 53  2
Q
= MC = 5
Q
= 24,
P
= 29,
π = (
P

AC)
⋅
Q
= 576
b.
MC =
P
= 5
P
= 5,
Q
= 48
c.
Competitive Consumers' Surplus =
2
(48)
2
= 1152.
Under monopoly:
Notice that the sum of consumer surplus, profits, and Deadweight loss under
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Unformatted text preview: monopoly equals competitive consumer surplus. Problem 2. 1. A monopoly's economic profits are represented by: a. (price minus marginal cost) times number of units sold b. (price minus average cost) times number of units sold c. (marginal revenue minus price ) times the number of units sold d. (marginal cost minus price) times the number of units sold Solution: b...
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This note was uploaded on 09/05/2011 for the course ECON 101 taught by Professor Buddin during the Fall '08 term at UCLA.
 Fall '08
 Buddin
 Monopoly, Perfect Competition

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