Exercise 3.8.Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is C = 100 - 5Q+ Q², and demand is P = 55 - 2Q.a) What price should DD set to maximize profit? What output does the firm produce? Howmuch profit and consumer surplus does DD generate?b) What would output be if DD acted like a perfect competitor and set MC = P? What profit andconsumer surplus would then be generated?c) What is the deadweight loss from monopoly power in part (a)?d) Suppose the government, concerned about the high price of doorstops, sets a maximumprice at $27. How does this affect price, quantity, consumer surplus, and DD's profit? What isthe resulting deadweight loss?e) Now suppose the government sets the maximum price at $23. How does this decision affectprice, quantity, consumer surplus, DD's profit, and deadweight loss?f) Finally, consider a maximum price of $12. What will this do to quantity, consumer surplus,profit, and deadweight loss?

Inverse Demand Function; P = 55 - 2Q Cost Function = C = 100 –5Q+Q2

Answered: Exercise 3.8. Dayna's Doorstops, Inc.…

Micro Economics For Today

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ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter9: Monopoly

Section: Chapter Questions

Problem 19SQ

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Exercise 3.8.
Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is C = 100 - 5Q
+ Q², and demand is P = 55 - 2Q.
a) What price should DD set to maximize profit? What output does the firm produce? How
much profit and consumer surplus does DD generate?
b) What would output be if DD acted like a perfect competitor and set MC = P? What profit and
consumer surplus would then be generated?
c) What is the deadweight loss from monopoly power in part (a)?
d) Suppose the government, concerned about the high price of doorstops, sets a maximum
price at $27. How does this affect price, quantity, consumer surplus, and DD's profit? What is
the resulting deadweight loss?
e) Now suppose the government sets the maximum price at $23. How does this decision affect
price, quantity, consumer surplus, DD's profit, and deadweight loss?
f) Finally, consider a maximum price of $12. What will this do to quantity, consumer surplus,
profit, and deadweight loss?

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Exercise 3.8. Dayna's Doorstops, Inc. (DD) is a monopolist in the doorstop industry. Its cost is C = 100 - 5Q + Q², and demand is P = 55 - 2Q.

a) solved

b) solved

c) solved

d) Suppose the government, concerned about the high price of doorstops, sets a maximum price at $27. How does this affect price, quantity, consumer surplus, and DD's profit? What is the resulting deadweight loss?

e) Now suppose the government sets the maximum price at $23. How does this decision affect price, quantity, consumer surplus, DD's profit, and deadweight loss?

f) Finally, consider a maximum price of $12. What will this do to quantity, consumer surplus, profit, and deadweight loss?

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