Monopoly Consider a situation where a monopolist faces the following inverse mar
ID: 1163283 • Letter: M
Question
Monopoly
Consider a situation where a monopolist faces the following inverse market demand curve
3. Monopoly Consider a situation where a monopolist faces the following inverse market demand curve p 132 -2q and the following cost function TC 12q +2q a) Derive the marginal revenue and marginal cost functions. b) What are the equilibrium price and quantity if this market behaved as if it were perfectly competitive? c) Calculate the Consumer Surplus, Producer Surplus and Welfare levels under perfect com- petition d) What are the equilibrium price and quantity when the monopolist produces as a monop- olist? e) Calculate the Consumer Surplus, Producer Surplus and Welfare levels under monopoly. f) How much deadweight loss does the monopolist create? g) What could the government do to regulate the monopolist?Explanation / Answer
a)
P = 132 - 2Q
TR = 132Q - 2Q^2
MR = 132 - 4Q
TC = 12Q + 2Q^2
MC = 12+4Q
b)
Equilibrium in competitive market P = MC
132 - 2Q = 12+4Q
120 = 6Q
Q = 120/6
= 20
P = 132 - 2*20
= 132 - 40
= 92
C)
CS = .5 ( 40*20)
= .5 *800
= 400
PS = .5(92)(20)
= 920
Total Surplus = 400 + 920
=1320
d)
MR = MC
132 - 4Q = 12+4Q
120 = 8Q
Q = 120/8
= 15
P = 132 - 2*15
= 102