ECO302 Chp 10 HW Solutions

ECO302 Chp 10 HW Solutions - Chapter 10 1. Suppose a firm...

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Chapter 10 1. Suppose a firm has a cost curve = + C 50 Q2 . Demand is given by = - Qd 50 P . Find the equilibrium * P and * Q for the monopolist. Graph the optimum along with the demand curve, MR and AC. Find the area that represents the profit for the monopolist. * Dr. S mentioned that he wouldn’t test us on profit maximizing for a monopoly; however, here is the answer. The monopolist will maximize profit by setting MC=MR. We are given the cost equation, which we may use to find MC. o = + = C 50 Q2 MC 2Q o We are given the equation for demand, which we may use to find MR. Recall that the MR curve has twice the slope of the demand curve. o : = - The inverse form of the demand curve is P 50 Qd o The MR curve has twice the slope: = - MR 50 2Qd o We may now set MC equal to MR and find Q o = - *= . 2Q 50 2Q Q 12 5 o We may now find P* by substituting Q* into the demand equation o . = - *= . 12 5 50 P P 37 5 o The optimum therefore lies where Q=12.5 and P=37.5 o o Figure 10.2 on page 10.3 represents a similar problem.
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ECO302 Chp 10 HW Solutions - Chapter 10 1. Suppose a firm...

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