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3610 PS5 Supplement

3610 PS5 Supplement - Cornell University Spring 2011...

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Unformatted text preview: Cornell University Spring 2011 Economics 3610: Problem Set 5 Written Questions Due March 17, 2011 1. Question 12 of Chapter 6 of Text, modified Suppose consumers at Home have the following demand Q=20-2P. The marginal cost of production is 2, and there is a fixed cost of 2. a. What is the slope of the demand curve? b.What is the Home monopolist’s marginal revenue? What is the slope of the marginal revenue curve? c. If the marginal cost is 4, what level of production maximizes profits for the monopoly? d. What is the profit at this level of production? e. What would be the price in a competitive market? the quantity? f. What is the relationship between the quantities you found in parts c and e ? What can you say about the relationship between the profits of the monopolist and the welfare of consumers? 2. Question 3 of Chapter 6 of Text Starting from the long-run equilibrium without trade in the monopolistic competition model, as illustrated in Figure 6-5, consider what happens when the Home country begins trading with two...
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