d Suppose that the world price was not 6 but instead happened to be exactly the

# D suppose that the world price was not 6 but instead

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d. Suppose that the world price was not \$6 but, instead, happened to be exactly the same as the domestic price without trade as determined in part (a). Would allowing trade have changed anything in the Wiknamian economy? Explain. How does the result here compare with the analysis in Chapter 9 ? 2. Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: 1. where Q indicates the number of copies sold and P is the price in Ectenian dollars. a. Find the price and quantity that maximizes the company's profit. b. Find the price and quantity that would maximize social welfare. c. Calculate the deadweight loss from monopoly. d. Suppose, in addition to the costs above, the director of the film has to be paid. The company is considering four options: i. A flat fee of 2,000 Ectenian dollars ii. 50 percent of the profits iii. 150 Ectenian dollars per unit sold iv. 50 percent of the revenue For each option, calculate the profit-maximizing price and quantity. Which, if any, of these compensation schemes would alter the deadweight loss from monopoly? Explain. 2. Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, let's assume that our monopolist's production costs are simply proportional to output so that average total cost and marginal cost are constant and equal to each other. a. Draw the cost, demand, and marginal-revenue curves for the monopolist. Show the price the monopolist would charge without price discrimination. b. In your diagram, mark the area equal to the monopolist's profit and call it X. Mark the area equal to consumer surplus and call it Y. Mark the area equal to the deadweight loss and call it Z.  #### You've reached the end of your free preview.

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