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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