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Department of Economics
W3211
Columbia University
Fall 2011
Probl
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m S
e
t 8
Int
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diat
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Mi
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onomi
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Prof
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S
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yhan E A rkona
c
1
.
Consider a town with a single movie theater, and that movie theater faces a downward
sloping demand curve for its tickets.
The movie theater has a fixed number of seats available
for each show but the marginal cost of filling a seat is zero.
Why might it be in the movie
theater’s interest to not to sell out every show even though the marginal cost of selling
additional seats is virtually zero?
(A graph will help your answer).
2
.
A monopolist faces the (inverse) demand for its product: p = 50 2Q.
The monopolist has a
marginal cost of 10/unit and a fixed cost given by F.
(a)
Assume that F is sufficiently small such that the monopolist produces a strictly positive
level of output. What is the profitmaximizing price and quantity.
(b)
Compute the maximum profit for the monopolist in terms of F.
(
c
)
For what values of F will the monopolists profit be negative
3
.
For profitmaximizing monopolies, explain why the boundaries on the Lerner Index are 0 and
1.
4
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This note was uploaded on 01/16/2012 for the course ECON W3211 taught by Professor Elmes during the Fall '09 term at Columbia.
 Fall '09
 Elmes
 Economics, Microeconomics

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