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

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