# Problem 1 Consider a monopoly selling at a single market where the demand is given by Q(p) = ap , with & > 1. The cost function of the monopoly

Problem 1

Consider a monopoly selling at a single market where the demand is given by Q(p) = ap , with & > 1. The cost function

of the monopoly is C(q) = cq.

a. Calculate the demand elasticity and write down the marginal revenue function as a function of price.

b. Find the price charged by the monopoly as a function of E.

c. happens to the monopoly’s price when & increases. Discuss.

d. happens to the monopoly’s price as & – 1. Explain.

e. is the monopoly’s profit-maximising output?

Problem 2

Consider a monopolised industry, where the demand function is given by Q(p) = p-, with & > 1. The cost function of the

monopoly is C(q) = cq.

a. Show that a social planner (or a competitive industry) would set a price yielding a total welfare of We =T.

b. Compute the welfare loss (WL) under monopoly. Problem 1

## Leave a Reply

Want to join the discussion?Feel free to contribute!