1)
Monopoly:
Suppose that the cost of building a telecommunications network is $100 million.
Once the network is in place, however, the cost of providing service to each household is $10
per house.
Suppose, as well, that a hypothetical telecommunications network faces a demand
curve characterized by the following equation: Qd=5,000,000*(100-P).
a) What is the equation for the marginal revenue curve?
(HINT: the MR curve always has
twice the slope of the demand curve - when price is on the y-axis.
So, you need to re-write
the above expression before you double the slope.)
b) Solve for the equilibrium price and quantity.
(HINT: equate MR and MC and solve for Q*.
Then, plug Q* into the demand curve to get price.)
c) What is the monopolist's profit?
(You will probably need a calculator for this.)
d) Suppose the government tried to force the telecommunications company to charge prices equal
to marginal cost.
What would happen in this market?
Why?
Practice Final Exam
Introductory Microeconomics
Summer 2011: Session II

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