EC111Class6Questions (1)

EC111Class6Questions (1) - the profit made by the...

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UNIVERSITY OF ESSEX Autumn Term 2011/12 DEPARTMENT OF ECONOMICS T Hatton EC111 Introduction to Economics: Class Exercises 6 (Week 8) 1. Illustrate using diagrams how equilibrium price and output under monopoly with U shaped average costs would be affected by: (a) a proportional tax on profits (b) a proportional tax on revenues (c) an increase in fixed costs (d) an increase in variable costs (e) a production subsidy 2. A monopolist faces the demand curve Q = 200 – 4P, where Q denotes output and P the price. This implies that marginal revenue is given by MR = 50 – ½Q. (a) Marginal cost is constant, initially at 10 per unit. Calculate the equilibrium output and
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Unformatted text preview: the profit made by the monopolist. Illustrate your answer on a diagram. (b) An inventor now offers to sell to the firm, for a fee of 400, a technique that will reduce marginal cost to 6 per unit. Will the firm choose to buy the new technique? Would it be in the interest of society as a whole (excluding the inventor) for the firm to purchase the technique? Key terms to revise and understand: Marginal Revenue and Average Revenue Super-normal profit Natural monopoly Types of price discrimination Regulation...
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This note was uploaded on 03/15/2012 for the course EC 111 taught by Professor Timhatton during the Spring '12 term at Uni. Essex.

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