ARE100B_09summer_HW1

# ARE100B_09summer_HW1 - ARE100B, assignment 1 Summer Session...

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ARE100B, assignment 1 Summer Session II, 2009 University of California, Davis Department of Agricultural and Resource Economics Assignment 1 (Due Thursday, Aug. 6) Problem 1: The demand for a monopolist firm’s production is given as: Q D = 5,000 – 40P. The firm’s total cost function is given as: TC = 50Q. (a) If the firm acts as a monopolist, what price will it firm charge, how much will it produce, what are monopoly rents, and how much profit will it earn? (b) Suppose instead the firm acts as a perfect competitor. What price will it charge, how much will it produce, and how much profit will it earn? (c) What are the following values when moving to the monopolistic pricing policy from competition?: (i) change in consumer surplus. (ii) change in producer surplus. (iii) deadweight loss . (d) Calculate the own-price demand elasticity when evaluated at the optimal monopoly solution? What is the Lerner-Index of monopoly power? How are the Lerner Index and demand elasticity related? (e) For any single firm in a perfectly competitive market (i.e., part (b) above), what is the elasticity of demand faced and the Lerner index. (f) Graph the monopoly and perfect competition solution . Show on your graph the prices and quantities, as well as deadweight loss, monopoly rents and profits. Problem 2: The average cost for a typical electric-power-production firm is: ATC = 11,000 – 120Q + Q 2 . where Q is measured in billion kilowatt hours per day. The inverse demand for electricity is given as: P = 60,000 – 900Q. 1

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ARE100B, assignment 1 Summer Session II, 2009 (a) Graph the all the relevant curves for a natural monopoly on a single graph (i.e., demand, MR, MC, and ATC.) (b) Over what range of quantity does the natural monopoly assumption hold. (c) Provide answers for each cell in the table below. You don’t need to submit the table with
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## This note was uploaded on 08/09/2009 for the course ARE 100B taught by Professor Whitney during the Summer '08 term at UC Davis.

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ARE100B_09summer_HW1 - ARE100B, assignment 1 Summer Session...

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