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Unformatted text preview: 1. Suppose that Barilla has a monopoly on store bought pasta. It faces a straight line demand curve with a vertical intercept of $100 and a horizontal intercept of 1,000,000 units. The constant marginal cost is $25. Barilla’s profit is… Answer: Slope =  100/1,000,000 =  .0001 P= 100  .0001Q Q = 10,000P + 1,000,000 π = (PMC)Q π = (P25) (10,000P+1,000,000) π = 10,000P 2 + 250,000P + 1,000,000P – 25,000,000 π = 20,000P + 1,250,000 Set π= 0 and solve for P 0 = 20,000P + 1,250,000 20,000P = 1,250,000 P = $62.50 To figure out profit plug P into your original profit equation π = (62.5025)(10,000(62.50) + 1,000,000) π = (37.50)(375,000) = $14,062,500 2. Suppose Audi has a monopoly on the automobile industry. It faces a straight line demand curve with a vertical intercept of $80,000 and a horizontal intercept of 200,000 units. The constant marginal cost is $20,000. The deadweight loss from monopoly is… Answer: Slope =  80,000/200,000 =  0.4 P = 80,000  .4Q Q = 200,000 – 2.5P π = (PMC)Q π = (P20,000)(200,0002.5P)π = (P20,000)(200,0002....
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 Fall '10
 Crum
 Deadweight Loss, Monopoly, constant marginal cost

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