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HW-1 due 0118 - Economics 11 Winter 2011 HW#1 Due Tuesday...

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Economics 11, Winter 2011: HW #1 Due Tuesday Jan 18 at the beginning of class In class, we worked out a comparison between the competitive solution and the monopoly solution in a setting with many consumers and one firm. Prob- lems 1 and 2 ask you to do the same thing for different cost functions. In both Problems 1 and 2, assume market demand is Q = 1 - P . 1. The cost function for the single firm is C ( Q ) = (1 / 2) Q + Q 2 (a) Find the supply function, assuming that the firm behaves as if it were competitive. That is, given a price P , find the profit- maximizing quantity Q . Caution: for some values of P , the profit-maximizing quantity Q = 0 (it will be optimal for the firm not to produce). (b) Use the supply function you computed above to find the compet- itive equilibrium quantity and price. (c) Find the monopoly quantity and price. (d) Compare the competitive solution and the monopoly solution with respect to price, quantity, consumer welfare, firm profit.
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