ajaz_eco_204_2012_2013_chapter_16_Market_Power_PP

Show all calculations d what would be the impact on

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Unformatted text preview: nal cost (in this question only)? Show all calculations. (c) Use Intel’s demand model from (16.7), part (c) to answer this question. Suppose Intel is a monopolist -- calculate Intel’s profit maximizing output and price. Show all calculations. (d) What would be the impact on Intel’s monopoly profits due to a hypothetical $1 decrease in its marginal cost (in this question only)? Show all calculations. 3 ECO 204 Chapter 16: Practice Problems & Solutions for Analysis of Firms with Market Power in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Solutions Question 16.1 Write down ● the Lagrangian objective function ● the first order conditions ● and (any) Kuhn-Tucker conditions for the following profit maximization problem (do NOT solve the problem): () () What are the possible “signs” of the Lagrange multipliers (i.e. positive, zero, negative)? Answer The problem is: () () () () () () Setup the Lagrangian objective function: () [ () [ The FOC and Kuhn-Tucker conditions are: () () [ [ From the KT conditions the signs of the Lagrange multipliers are: 4 ECO 204 Chapter 16: Practice Problems & Solutions for Analysis of Firms with Market Power in ECO 204 (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Question 16.2 Write down ● the Lagrangian objective function ● the first order conditions ● and (any) Kuhn-Tucker conditions for the following profit maximization problem (do NOT solve the problem): () () What are the possible “signs" of the Lagrange multipliers (i.e. positive, zero, negative)? Answer The problem is: () () () () () () Setup the Lagrangian objective function: () [ () [ The FOCs and Kuhn-Tucker condition are: () () [ [ From the KT condition: zero, or negative. Since the Lagrange multiplier corresponds to an equality...
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