Consider a monopoly market in which the initial price is $40K, the initial quantity is 20, and the elasticity of demand is -2.5. A government program directly supplies an additional 4 units at the market price. For example, this is surplus equipment being auctioned to the highest bidder. a) Estimate MC. Thereafter assume it is constant. b) Use the initial equilibrium and the elasticity of demand to approximate the initial demand curve. c) Approximate the monopolist’s demand after the program provides 4 units.
Consider a
a) Estimate MC. Thereafter assume it is constant.
b) Use the initial equilibrium and the elasticity of demand to approximate the initial demand curve.
c) Approximate the monopolist’s demand after the program provides 4 units.
d) Estimate the new price, the new quantity provided by the monopolist, and the new quantity consumed by customers.
e) Sketch the situation.
f) Estimate the impact on CS, PS, GS, and SS assuming the METB is 0.25.
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