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E202PracticeExam3.8

# E202PracticeExam3.8 - units so marginal revenue is the...

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4. (15 pts) Suppose the monopolist in Problem 3 can perfectly price discriminate. a. Derive and graph producer surplus, consumer surplus, and total economic surplus. Compare to the previous values. Answer : The perfectly-discriminating monopolist charges the reservation price for each consumer whose reservation price exceeds marginal cost, in this case Q = 30, and thus captures the full economic surplus. Producer surplus is total economic surplus of (\$60 - 0) 30/2 = \$900 so both increase, and consumer surplus drops to zero. b. Is there any deadweight loss due to monopoly now? Why or why not? Answer : No, there is not any deadweight loss due to the monopoly. By being able to charge each customer their reservation price, a perfectly-discriminating monopolist escapes the troubles of a single price monopolist. Selling an additional unit does not require lowering the price of other
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Unformatted text preview: units, so marginal revenue is the price, not less than the price. Therefore, a perfectly-discriminating monopolist is willing to sell all units for which the buyers valuation exceeds the monopolists marginal cost and achieves full efficiency. Chapter 11 5. (10 pts) Suppose the supply curve of boom box rentals on Golden State Park is given by P = 5 + 0.1 Q, where P is the daily rent per unit in dollars and Q is the number of units rented in hundreds per day. The demand curve for boom boxes is P = 20 - 0.2 Q. a. If each boom box imposes \$3 per day in noise costs on others, by how much will the equilibrium number of boom boxes rented exceed the socially optimal number?...
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