a) If a regulator could force a natural monopoly firm to sell the socially optimal level of output at a uniform price, explain why doing so would cause the firm to lose money. b) Explain why an unregulated perfectly discriminating monopoly firm (PDM) would produce the socially optimal output.
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- As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 40 − 2Q, and your costs are C(Q) = 8Q. a. Determine the monopoly price and output. b. Determine the socially efficient price and output. c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?As the manager of a monopoly, you face potential government regulation. Your inverse demand is P=40-2Q and your costs are C (Q) =8Q. Determine the socially efficient price and output.a) If the only goal of a regulator of a natural monopoly firm that charges a uniform price is to ensure that the firm produces the socially optimal level of output, and the regulator has the authority to order the firm to do so, explain why this power could not be exercised when the viability of the firm is taken into account. b) Explain why a regulator, whose sole objective is to ensure that a monopoly firm produce the socially optimal output, would have no need to do anything if the firm were a perfectly discriminating monopoly. c) If the market demand curve is common knowledge for a natural monopoly firm and a regulator, but unlike the firm, the regulator has no information about the firm’s cost curves. Explain how a regulator could incentivize the firm to produce the socially optimal output, bearing in mind that the regulator does not even know which level of output is socially optimal?
- As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 50 - 1Q, and your costs are C(Q) = 18Q.a. Determine the monopoly price and output.Monopoly price: $___ Monopoly output units____b. Determine the socially efficient price and output.Socially efficient price: $____ Socially efficient output Units___c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level?$____As the manager of a monopoly, you face potential government regulation. Your inverse demand is P = 25 − 2Q, and your costs are C(Q) = 5Q. a. Determine the monopoly price and output. Monopoly price: $ Monopoly output: units b. Determine the socially efficient price and output. Socially efficient price: $ Socially efficient output: units c. What is the maximum amount your firm should be willing to spend on lobbying efforts to prevent the price from being regulated at the socially optimal level? $At a monopolist’s profit-maximizing level of output, what is the Total Revenue? At a monopolist’s profit-maximizing level of output, what is the Total Profit? At the socially optimal level of output, what is the Total Revenue? At the socially optimal level of output, what is the Total Profit?
- A monopolist faces a market demand curve given by: Q = 80 - p.Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000.The monopoly will choose a price-quantity combination of (50 and 30) to maximize profit. The total profit is 425. Question 1: What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain be from this output level compared to the outcome described above?Question 2: If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (question 1) and where profit was 425, and price -quantaty combination (50 and 30)?The graph depicts market conditions for an unregulated, profit-maximizing monopolist that is unable to price discriminate. Assuming the market demand function is equivalent to marginal benefit, the socially efficient level of output in this market is 1000 units of output; deadweight loss is approximiately equal to $________ (since the MC function is not a straight line and deadweight loss is measured as the area of a triangle, it is an appoximation).Explain natural monopoly in case of public production of private goods.
- Continue with your analysis of the monopoly cable-television company with demand of Qd = 60 - P/2 (alternatively, you can write the demand equation as Qd = 60 – 0.5P) and MC = 0.5Q + 30. Explain how you’ve determined the socially optimal output level. How does the socially optimal output compare to the monopolist output in terms of individual CS, PS, and DWL (e.g., compare CSm and CSSOC, and so on)? How does the total surplus (sum of consumer and producer surpluses) compare between the two situations? (Narrative response; suggested length of four to eight sentences or one to two paragraphs. It might be useful to create a table to contrast the two settings.)Monopoly Equilibrium Suppose a firm operates as a monopoly in an unregulated market. The firm's total cost function for producing quantity, Q is given by the equation: TC 2000+200Q + Q^2. The market demand curve is given by the equation: Q = 220 0.5P. a. What is the firm's marginal cost curve? Show graphically. b. What is the firm's marginal revenue curve? Show graphically. c. Calculate the monopoly's profit maximizing price and quantity. Show graphically. d. What is the socially efficient price and quantity? Show graphically. e. When moving from the socially efficient price and quantity to the monopoly solution: a. How does consumer surplus change? b. How does producer surplus change? c. What is the social cost of the monopoly solution? f. Calculate the monopoly rents.A monopolist faces a market demand curve given by: Q = 80 - pa) Assume that the monopolist has a cost structure where total costs are described by: C(Q) = 0.25Q2 - 5Q + 1000.What price-quantity combination will a profit maximising monopolist choose? What will profits be? b) What output level would be socially optimal? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain be from this output level compared to the outcome in (a)?c) If government regulation forces the firm to set its price equal to its average cost of production, what will the output level be? What is the price at this output level, if all units are sold at the same price? What is the profit? What would the social welfare gain or loss be from this output level compared to the outcomes in (a) and (b)?
