# econ101_ps7 - METU Department of Economics Econ 101...

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1 METU Department of Economics Econ 101: Introduction to Economics I All sections (01-02-03) Fall 2010 PROBLEM SET 7 (Chp 13-14,Lipsey 15) 1. A monopoly’s cost and revenue structure is given below: Q P = AR TR MR TC MC PROFIT 0 31 3 1 28 21 2 25 38 3 22 54 4 19 71 5 16 90 6 13 110 7 10 132 8 7 157 9 4 185 10 1 215 a) Fill the blank cells. b) Monopoly’s equilibrium price is ____. c) Monopoly’s equilibrium quantity is _____. d) Profit/Loss at equilibrium is _____. 2. The diagram below shows the demand and unit cost situation of a monopolist. Quantity Price and Cost per unit A B C MC ATC MR Demand H N J L E G 0

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2 a) In order to maximize profits or minimize losses how much should this firm produce and at which price? b) In equilibrium how much total revenue will the firm collect? c) In equilibrium how much total cost will the firm incur? d) State whether the firm faces a profit or a loss in the equilibrium. 3. A discriminating monopolist can separate his consumers into two distinct markets with the following demand functions: Market 1: Q 1 =16 – 0.2P 1 Corresponding MR function MR 1 =80-10Q 1 Market 2: P 2 =180 – 20Q 2 Corresponding MR function MR 2 =180-40Q 2 Assume the monopolist’s TC function takes the form TC - 20Q – 20 = 0 where Q = Q 1 + Q 2 , and that it wishes to maximize profits, calculate a) the prices the monopolist will charge in each market. b) the monopolist’s profit with price discrimination. 4. Maki owns the only sushi restaurant in Ankara. The monthly demand for sushi is q = 2,000 - 100 p, where q denotes boxes of sushi and p is the price per box. It costs her \$2,000 per month to rent the space, and to pay the fixed salaries of the cook and the waitresses. Once the restaurant is in operation, it costs \$5 per box for the ingredients. MR functions is MR= 20 – q/50 a) What is her marginal cost? Express the total cost as a function of quantity. Also express the total revenue as a function of quantity. b) Graph the demand, marginal revenue and marginal cost curves. c) Calculate and indicate on the graph the equilibrium price and quantity. d) How much profit does Maki earn from the restaurant? e) What is the level of consumer surplus? f) Calculate the deadweight loss that results from the restaurant’s monopoly.
3 5. The table below gives the total and marginal product schedules for a firm that sells its output in a competitive market. Initially the price at which the firm can sell any level of output is 5TL per unit and the wage rate at which it can purchase any quantity of labor is 15TL per unit.

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econ101_ps7 - METU Department of Economics Econ 101...

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