1
Economics 101
Spring 2011
Homework #6
Due 5/3/11
Directions:
The homework will be collected in a box
before
the lecture. Please
place your name
, TA name
and section number
on top of the homework (legibly).
Make sure you write your name as it appears on your ID so that you can receive the
correct grade. Please remember the section number for the section
you are
registered,
because you will need that number when you submit exams and
homework. Late homework will not be accepted so make plans ahead of time.
Please show your work.
Good luck!
1.
Monopoly: Because of a drug patent, the market for a certain new prescription
drug is a monopoly. Assume the market demand is given by P=130‐2Q. The
marginal cost is given by MC=10+Q.
a.
What is the marginal revenue curve of this monopolist?
b.
Graph the demand, marginal revenue, and marginal cost curves.
c.
What is the socially optimal level of production?
d.
What is the monopolist’s ideal quantity of production if the monopolist
only charges one price for the good? What price does he charge?
e.
What are the consumer and producer surpluses for the monopolist
described in part (d)? What is the deadweight loss for this monopolist?
Mark these areas on your graph.
f.
If the total cost curve is given by TC=15+10Q+Q
2
, what is the monopolist’s
ATC? What’s the monopolist’s profit? In the LR, can the monopolist stay in
business? (Note: you do not need to graph TC or ATC to do this question.)
g.
T/F: The “double‐the‐slope” method for finding MR works both when
your demand curve is solved for Q and when it is solved for P.
2.
Natural Monopoly: Suppose a local utility company has a TC function given by
TC=400+4Q. The demand is given by P=120‐4Q, and the MC is constant at $4.
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 Spring '10
 kelly
 Economics, Supply And Demand, marginal cost, Starplex

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