problemset9 - Middle East Technical University Department...

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Middle East Technical University Spring 2011 Department of Economics ECON 201 Erol Çakmak TA: Osman Değer PROBLEM SET 9 1) A monopolist with the cost function C (Q) = Q 2 +1 faces a demand curve Qd = 20 p. a. If the firm determines its price as if it operates in a perfectly competitive market what is the level of output and price? Calculate also consumer surplus under these conditions. b. Find the profit maximizing price and output for monopoly behavior. Calculate also level of profit, consumer surplus and deadweight loss. Compare the results with part a. c. If the firm is able to apply perfect price discrimination, what is the level of output and price? What will be the deadweight loss? 2) A monopolist faces the (inverse) demand for its product: p = a bQ. The monopolist has a marginal cost given by c 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 profit maximizing price and quantity? b. Compute the maximum profit for the monopolist.
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This note was uploaded on 03/22/2012 for the course ECON 201 taught by Professor Çakmak during the Fall '10 term at Middle East Technical University.

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problemset9 - Middle East Technical University Department...

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