Consider the following problem. Demand: q = 100-p Retailer: marginal cost of selling r = 10 per unit Manufacturer: marginal cost of producing = 40 per unit Neither firm faces any competitor 1. Suppose the manufacturer owns the retailer. Write down the profit function of the vertically-integrated firm and solve for monopoly price, quantity, and total profit. 2. Suppose now that the retailer and the manufacturer are separate firms. The retailer will buy from the manufacturer at a unit price w (wholesale price). Write down the profit function of the retailer if it buys at w per unit, incurs the marginal cost of selling, and faces the same demand curve as before. Solve for the optimal price for the retailer and the quantity sold as functions of w.

Consider the following problem. Demand: q = 100-p Retailer: marginal cost of selling r = 10 per unit Manufacturer: marginal cost of producing = 40 per unit Neither firm faces any competitor 1. Suppose the manufacturer owns the retailer. Write down the profit function of the vertically-integrated firm and solve for monopoly price, quantity, and total profit. 2. Suppose now that the retailer and the manufacturer are separate firms. The retailer will buy from the manufacturer at a unit price w (wholesale price). Write down the profit function of the retailer if it buys at w per unit, incurs the marginal cost of selling, and faces the same demand curve as before. Solve for the optimal price for the retailer and the quantity sold as functions of w.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.6P

See similar textbooks

Similar questions

we had two buyer types for pharmaceuticals. One with inverse demand P = 8 – 0.25Q, and one with inverse demand P = 4 – 0.1Q. Marginal cost of the monopolist was constant and equal to 2. If the monopolist cannot price discriminate (so they charge a single price to everyone), show whether their profits are higher serving only the high demand market, or serving both markets. Show whether consumer surplus is higher or lower with or without price discrimination at the monopolist’s optimal solution in either case.
Suppose that a monopolist, who sells all units at a uniform price, faces an inverse market demand curve P=200- 4Q. If there is no cost of production, what output would the firm produce to maximize profit, what price would the firm charge, and what profit would the firm earn? Give the numerical value of these three variables
Please note: Parts a, b, and c are already answered. Please answer part d which has two subparts. You are the manager of a monopoly with costs, demand, and marginal revenue as in the graph at the top of Figure 1 attached. d. Suppose economic conditions change in such a way that the demand curve for your company shifts left.i. Draw a demand curve on the bottom graph on Figure 1 that leads to zero economic profits.ii. Draw a demand curve on the bottom graph on Figure 1 such that any further leftward demand shift will cause you to shutdown.
Suppose ABC is still a monopolist selling to the two retailers but it now discovers that if retailers supply customer services, demand shifts to P = 90 – Q. Each retailer can provide the required services at a total cost of $400. c. ABC decides to implement an RPM agreement with retailers. Under this agreement, what retail price should ABC specify? How many units will retailers sell at this price? d. Under this RPM agreement, what is the maximum wholesale price that ABC can set? In answering this question, assume that at the RPM price competitive pressure forces each retailer to offer the required services (i.e., any retailer offering a lower service level loses all its customers). e. What is the consumer surplus and profits at this wholesale price? Has the RPM agreement improved social welfare?
Price rigidity, collusion, and booms. (This follows Rotemberg and Saloner 1986.) Suppose that a sector, with N firms, faces the demand function, p = e - bq, where e is Li.d. and uniform on [0, IJ. The marginal cost of production is equal to zero. (a) Suppose that the N firms collude to achieve the monopoly outcome. Determine the monopoly price and quantity (assuming that prices are set after e is realized). (b) Determine the profit of each firm if the sector behaves as a monopolist. (c) What is the relation between e and the incentive to cheat, that is, the incentive for any of the N firms to post a price e lower than the others? (d) Suppose that there is a fixed punishment K for firms that do not cooperate. Write down e·, the value of the shock such that firms are indifferent between colluding and cheating. Derive the price charged by the sector as a function of e. What is the highest sustainable price when e exceeds e* (e) Suppose that the punishment is that if a firm…
A monopoly faces a continuum of consumers who are distributed uniformly on the unit interval [0,1]. The total mass of consumers is 1. Each consumer is interested in buying at most one unit. Consumers differ in the way they perceive the monopoly’s product. Assuming for simplicity that the monopoly is located at point 0, the utility of a consumer who is located at some point between 0 and 1 if he buys from the monopoly is , whereis the monopoly’s price, is the direct utility from consumption, and is the transportation cost. If a consumer does not buy, his utility is 0. The marginal cost of production is 0. a) What is the market demand for the monopoly? (Hint: Compute the marginal consumer who is indifferent between “buy” and “not buy”. Also, be careful about whether the marginal consumer is bounded by the endpoints 0 and 1.) b) Now suppose the market is duopoly. Firm A is located at point 0 and Firm B at point 1. A consumer located at point (between 0 and 1) gets utility when buying…
A monopoly faces a continuum of consumers who are distributed uniformly on the unit interval [0,1]. The total mass of consumers is 1. Each consumer is interested in buying at most one unit. Consumers differ in the way they perceive the monopoly’s product. Assuming for simplicity that the monopoly is located at point 0, the utility of a consumer who is located at some point between 0 and 1 if he buys from the monopoly is , whereis the monopoly’s price, is the direct utility from consumption, and is the transportation cost. If a consumer does not buy, his utility is 0. The marginal cost of production is 0. a) What is the market demand for the monopoly? (Hint: Compute the marginal consumer who is indifferent between “buy” and “not buy”. Also, be careful about whether the marginal consumer is bounded by the endpoints 0 and 1.) b) Now suppose the market is duopoly. Firm A is located at point 0 and Firm B at point 1. A consumer located at point (between 0 and 1) gets utility when buying…
Suppose a manufacturer sells to a retailer of its product. Final market demand for the product is given by P = a - bQ. The marginal cost of upstream manufacture is c. The unit costs associated with retailing are zero.(A) Suppose that the two stages are integrated and operated by a monopolist. What would the integrated monoply price of the final product be? What is the profit of the integrated monopolist? (B) Now assume that the two stages are not integrated, and in addition, each stage is a separate monopoly. Solve for the input price (that is, the price the manufacturer sets), the final product price, and the profits of each of the two stages.
A monopoly drug producer that has a constant marginal cost of $1 sells in only two countries and faces a linear demand curve of Q1 = 12 – 2P1 in Country 1 and Q2 = 9 – P2 in Country 2. What price does it charge in each country? What quantity does it sell in each country? explian
Consider a monopolist who is selling his blockbuster drug in two markets where one market is much larger than the other. Suppose the demand in the two markets is given by q1 = 30 − p1 and q2 = 3 − p2 (quantity is measured in millions of complete dosages and price is in your favorite currency) and the marginal cost of production and distribution is roughly the same and equal to 1 per unit (c=1). This problem asks you to compare equilibrium outcomes (prices, quantities, profits, consumer surplus, and consumer surplus per unit of output) when the monopolist can price discriminate across the two markets versus when it must set a uniform price. It then asks you to comment on some recent policy proposals. For each market separately, set up and solve the monopolist’s profit-maximizing problem. Specifically, write down/compute the following. Inverse demand and the profit functions. Equilibrium prices (), quantities () and profits () Consumer surplus () and consumer surplus per unit of…
. Suppose you are a manager of a County government project that is meant to provide rent-regulated housing units in low-income settlements. Using your knowledge of equilibrium, advice the Governor whether this policy will be a success. b. A Monopolist producing and supplying cooking gas to Mombasa city faces the demand function. Q = 8800 – 20P. Its cost function is given by TC = 20Q + 0.05Q2. i. Determine the quantity of cooking gas she will produce and the price she will charge to maximize profits and determine her profit. ii. Explain how her profits she will affected if regulators forced her to operate like a perfectly competitive firm. iii. Illustrate and compute dead-weight loss and lost consumer surplus associated with her Monopoly operations.
Suppose that the monopolist from Question 4 is now forced to charge the same price in both markets. Using thedemand functions and cost function from Question 4, what is the total inverse demand in this case? What is theprofit-maximizing price? What is the monopolist’s profit? (Question 4 = A monopolist is operating in two separate markets. The inverse demand functions for the two markets are P1 = 35 – 2.5Q_1 and P2 = 30 – 2Q_2. The monopolist’s total cost function is TC(Q) = 8 + 5(Q_1 + Q_2). Q_1 means Q subscript 1