Consider a monopolist facing a linear inverse demand curve p(q) = a bq, where q denotes units of output and b > 0 represents the slope of the inverse demand curve. This rm faces cost function C (q) = F + cq, where F denotes its xed costs (can contain sunk costs), c represents the monopolist s (constant) marginal cost of production and assume a > c 0. Let us say that a regulator wants to induce the monopolist to produce q instead of qm. Would the monopolist have positive pro ts at q ? Suppose F represents only sunk costs, would the monopolist produce q in this case? Explain. Suppose F are only sunk costs and that the regulator of the monopoly establishes the price the monopoly takes as given and then decides to produce the level that maximizes pro ts. What is the price level the regulator would need to establish for the monopoly to be induced to produce the social optimum level q ? How would your conclusion change if F are xed costs? Explain.
Consider a monopolist facing a linear inverse demand curve p(q) = a bq, where q denotes units of output and b > 0 represents the slope of the inverse demand curve. This rm faces cost function C (q) = F + cq, where F denotes its xed costs (can contain sunk costs), c represents the monopolist s (constant) marginal cost of production and assume a > c 0. Let us say that a regulator wants to induce the monopolist to produce q instead of qm. Would the monopolist have positive pro ts at q ? Suppose F represents only sunk costs, would the monopolist produce q in this case? Explain. Suppose F are only sunk costs and that the regulator of the monopoly establishes the price the monopoly takes as given and then decides to produce the level that maximizes pro ts. What is the price level the regulator would need to establish for the monopoly to be induced to produce the social optimum level q ? How would your conclusion change if F are xed costs? Explain.
Chapter14: Monopoly
Section: Chapter Questions
Problem 14.9P
Related questions
Question
Consider a monopolist facing a linear inverse demand curve p(q) = a bq, where q denotes units of output and b > 0 represents the slope of the inverse demand curve. This rm faces cost function C (q) = F + cq, where F denotes its xed costs (can contain sunk costs), c represents the monopolist s (constant) marginal cost of production and assume a > c 0.
- Let us say that a regulator wants to induce the monopolist to produce q instead of qm. Would the monopolist have positive pro ts at q ? Suppose F represents only sunk costs, would the monopolist produce q in this case? Explain.
- Suppose F are only sunk costs and that the regulator of the
monopoly establishes the price the monopoly takes as given and then decides to produce the level that maximizes pro ts. What is the price level the regulator would need to establish for the monopoly to be induced to produce the social optimum level q ? How would your conclusion change if F are xed costs? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Principles of Economics, 7th Edition (MindTap Cou…
Economics
ISBN:
9781285165875
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning