{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

econ101_ps7_sol

# econ101_ps7_sol - METU Department of Economics Econ 101...

This preview shows pages 1–4. Sign up to view the full content.

1 METU Department of Economics Econ 101: Introduction to Economics I All sections (01-02-03) Fall 2010 PROBLEM SET 7 (With Answers) PART A- PROBLEMS 1. A monopoly’s cost and revenue structure is given below: Q P = AR TR MR TC MC PROFIT 0 31 0 3 -3 1 28 28 28 21 18 7 2 25 50 22 38 17 12 3 22 66 16 54 16 12 4 19 76 10 71 17 5 5 16 80 4 90 19 -10 6 13 78 -2 110 20 -32 7 10 70 -8 132 22 -62 8 7 56 -14 157 25 -101 9 4 36 -20 185 28 -149 10 1 10 -26 215 30 -205 a) Fill the blank cells. b) Monopoly’s equilibrium price is 22. c) Monopoly’s equilibrium quantity is 3. d) Profit/Loss at equilibrium is 12.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 2. The diagram below shows the demand and unit cost situation of a monopolist. a) In order to maximize profits or minimize losses how much should this firm produce and at which price? Q = 0E, P = 0A b) In equilibrium how much total revenue will the firm collect? 0AJE c) In equilibrium how much total cost will the firm incur? 0BHE d) State whether the firm faces a profit or a loss in the equilibrium. Profit by AJBH 3. The monopolist will allocate production so that MC = MR in each market. MC = MR 1 =MR 2 TC – 20Q – 20 =0 or TC = 20Q + 20, then MC is constant at 20. In market 1, Q 1 = 16 – 0.2P 1 or P 1 = 80 – 5Q 1 TR 1 = P 1 Q 1 = (80 – 5Q 1 )*Q 1 = 80Q 1 - 5Q 1 2 MR 1 = 80 – 10Q 1 Then 80 – 10Q 1 = 20 and Q 1 =6, P 1 =50 In market 2 Q 2 =4 and P 2 =100 a) Profits with price discrimination: S=(TR 1 + TR 2 ) – TC = 480 Quantity Price and Cost per unit A B C MC ATC MR Demand H N J L E G 0
3 4. a) Marginal cost = \$5. Total cost = 2,000 + 5 q. Let us rearrange the demand equation as: p = 20 – q/100. So total revenue = p*q = 20 q – q 2 /100. b) Marginal revenue = 20 – q/50. c) In the monopoly equilibrium MR = MC, which implies, using our expressions, 20 – q/50 = 5. From this we can solve for the equilibrium quantity as q * = 750. Plugging that into the demand equation we solve for equilibrium price as p * = 12.5. d) Maki’s profit = total revenue – total cost = (12.5 × 750) – (2,000 + 5 × 750) = 3625. e) Consumer surplus = ½ [750 × (20 – 12.5)] = 2812.5. f)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 9

econ101_ps7_sol - METU Department of Economics Econ 101...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online