Monopoly and Imperfect Competition Homework Solutions, Assignments of Microeconomics

Download Monopoly and Imperfect Competition Homework Solutions and more Assignments Microeconomics in PDF only on Docsity! Prof. Sarah Hamersma ECO 3101 Homework # 5 – Monopoly and Imperfect Competition due Wednesday, April 9 in class 1. A monopolist faces a market demand curve given by: P = 70 – Q a. Calculate the expression for MR. (You will need to recall that TR = P*Q and MR = dTR/dQ) b. If the monopolist can produce output at constant marginal (and average) cost of $6 per unit, what output level will the monopolist choose in order to maximize profits? (assume no price discrimination is allowed) c. At this level of output, what price should the monopolist charge and what will the total profits be? d. Graph the market demand curve, MR curve, and the marginal cost curve and then label the monopolist’s choice of P and Q on the graph. e. Suppose instead that the monopolist does not have constant costs of production, but instead has total costs described by: TC = .25Q2 – 5Q + 300 Repeat parts b-d for this situation. 2. Suppose demand has increased for cable services since the writer’s strike ended. Assume marginal cost is constant. Usually if demand expands in a competitive market, it drives up prices. Show that this expansion in demand will NOT necessarily drive up the price for this monopoly. (Hint: the easiest way to do this is to show two identical monopoly graphs, then show a demand shift in each, where one results in a new monopoly price ABOVE the old one and the other one results in a new monopoly price BELOW the old one.) 3. Suppose a textbook monopoly can produce any level of output at a constant marginal cost of $5 per book. Assume the books sell in two different market that are separated by a large distance so people cannot buy the book from the other market. first market’s demand: P1 = 55 – Q1 second market’s demand: P2 = 35 – ½ Q2 a. If the monopolist can maintain the separation between the two markets, what level of output should each produce and at what price should each sell the books? Calculate total profits for the firm (which sells all the books in both markets).